Global property investors should focus on economic performance as underpriced markets become scarcer following the global market recovery, according to new research from real estate fund managers PRUPIM.

Publishing its latest International Real Estate Perspective report into the property investment climate in Europe, Asia and North America, the firm said that opportunities exist in all three regions but strongly undervalued bargains are thinner on the ground than at any time since the depths of the financial crisis.

Richard Gwilliam, Deputy Head of Research at PRUPIM says: “A year ago, there were plenty of easy property pickings around the world, because of the massive overcorrection following the credit crunch. This year, our analysis suggests that, on a risk adjusted basis, the major global regions offer broadly similar long run value.

“We believe that in this climate, where the roller coaster effects of the past few years have eased, investors should focus on economic fundamentals, as the comparative strength of individual economies takes over as the predominant driver of differences in market performance in the year ahead and beyond.”

PRUPIM believes that investors are increasingly discerning about the risks they are taking on – both in terms of markets and assets. Liquidity is regarded as a problem in some markets, such as the smaller European countries, while many parts of the world are still dogged by weak rental markets and shaky income security. Property is seen in many cases as an “income-play” which means that, at asset level, lease length and the covenant strength have become ever more vital.

In terms of investment strategy, markets should be chosen based on a combination of robust economic strength, which will drive rental growth, and attractive pricing. On this basis, PRUPIM sees opportunities in a number of markets across the world. The firm remains relatively positive about Asia Pacific, as the region’s economic growth is underpinned by buoyant domestic demand, capital inflows and demographic change.

Australia looks particularly appealing: this is one of the world’s most transparent property markets, investment yields look relatively attractive and the country’s economy is benefiting from the proximity to booming developing Asia.

PRUPIM believes that despite Europe’s sovereign debt and currency issues still playing out, 2011 will be a year for investment in quality assets in core markets such as Germany, France and Scandinavia. Peripheral markets, where the economic problems are most apparent, are likely to remain a no-go area for institutions.

North American real estate investment markets are expected to continue to recover, with fierce competition for the tight supply of prime assets in core markets driving yield compression. The strongest recovery in fundamentals may be in Canada as it is less exposed to financial sector aftershocks.

“From an asset allocation perspective, the case for investing in global property in 2011 remains very strong, given the poor returns on offer from very low bond yields, the volatility of the equity markets and property’s traditional role as a diversifier and an inflation hedge. While much of the value we saw in markets in 2009 and early 2010 has been eroded due a recovery in prices, there are still pockets of opportunity around the world. 2011 might be a year of polarising returns, with the gap between winning and losing markets possibly widening,” concludes Richard.

ENDS

Notes to Editors

About PRUPIM
PRUPIM has around £15 billion invested in a broad spread of properties across Europe, North America and the Asia Pacific region. PRUPIM is part of M&G, the investment arm of Prudential Plc in the UK and Europe.

For more information, visit http://www.prupim.com. To download the report, visit http://www.prupim.com/about/media/Publications.

About PRUPIM Singapore
PRUPIM Singapore is a 50:50 joint venture property investment management company formed by London-based PRUPIM and Hong Kong-based Prudential Corporation Asia.

PRUPIM publishes a separate bi-annual UK Perspective, which focuses on the UK property market.

For more information:
Paul Griffin, PR Manager, PRUPIM, D: +44 (0)20 7548 6976 / M: +44 (0)7766 726722
Email: Paul.Griffin@prupim.com