Offices now a good entry point and retail could surprise: AEW

Following a bigger-than-expected shift in yields, offices could currently be a good entry point for property investors, according to AEW’s European head of research and strategy Hans Vrensen.

“Offices has been a highly contested topic,” he said. “From working from home and some of the green agenda that is now facing this sector as well, but based on the rebound that we expect – especially given the yield widening that we saw which was much more than we had actually projected – we think that offices could be a good allocation.”

Vrensen still likes logistics and residential too, but retail will be a sector-pick later, based on the firm’s latest forecasts whose base case shows relatively modest rental growth.

“Of course, yields have already gone up a lot, especially for shopping centres,” he said, adding that retail rental growth will be more sensitive to macroeconomic growth than that of other sectors. “So, if we have a surprise on the upside where macroeconomic growth is stronger than we currently expect, we could see that rental growth on the prime retail side also increases a lot more than is currently in our base case.”

AEW’s debt funding gap report has proved to be one of the firm’s most popular pieces of work. “We get a lot of questions about it. We will continue to update that and we hope to use slightly more precise assumptions along the way.”

Vrensen was talking to Real Asset Insight’s Richard Betts at Ashurst’s office in Frankfurt following Real Asset Media’s recent European Debt Finance & Investment briefing. “It’s really comforting to hear that people are resolving these issues, they’re bridging that gap.”

He said that this might be attributable to German efficiency. “They are disciplined, they’re working through the problems that that have been created, and the Gap will be bridged in the next three or four years.”

He said that the timing issue is something that that his team is examining. “We had hoped that it might be only a two or three-year problem but if it’s manageable maybe the timing is not such a big issue.”