Investors should diversify across markets

Investors looking for long-term security would do well to focus on the residential sector, says Maurizio Grilli, head of investment management analysis, BNP Paribas Real Estate. 

‘Residential is obviously a good long-term story,’ he says, given the urbanisation trend and demographic pressures in Europe. ‘Alternatives like healthcare and senior housing are also interesting. However, the most traditional sectors will remain attractive, especially offices and logistics. Retail, as everybody knows, is going through a kind of transition and there will be winners and losers as the sector changes.’

Instead of picking a sector, a country or even a city Grilli believes investors should ‘focus on the features of what they are looking for in terms of performance or risk, the specific aspects that dictate performance, be it growth, income or liquid markets. We try to mimic the analysis of the stock market asset managers do and be more scientific in how we select markets and assets.’

Investors should also be realistic about what is achievable in the current environment. ‘I believe 2019 will still be a good year for real estate, but of course the meaning of good year is changing as we move along the cycle,’ he says. ‘What I mean is that we can’t expect the kind of returns that we were used to for the last few years because in the long run GDP growth and inflation will be lower and interest rates will not be at the level that we have seen in this cycle.’

It is rational therefore to expect lower returns for all asset classes, Grilli says, ‘but in relative terms real estate will still be attractive. Income is still the name of the game, and the capacity to grow your income whenever possible is key. The chances of strong capital growth are very low.’

In this context, his advice to investors is to diversify as much as possible. ‘I would rather not pick a specific market, but encourage diversification across Europe because markets are at different stages of the cycle,’ he says. ‘The UK is at a later stage of the cycle and it is currently going through a difficult political transition, but it will come back, maybe next year. Germany is very expensive at the moment, but it has a decent growth perspective. You can find a reason to invest in all the other markets.’

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