Real estate investors will continue to encounter low interest rates, muted inflation and sluggish growth in most of the world’s major real estate markets for at least the next couple of years, yet steady economic improvement in 2013 will benefit the sector, according to LaSalle Investment Management.

According to LaSalle’s Investment Strategy Annual survey of the global real estate markets for the next 12 months, there are more reasons to be optimistic in 2013 with steady improvement in the world’s three largest economies (US, China, and Germany). Highly accommodative monetary policies are bringing relief to capital-intensive industries like real estate. At the same time, the low cost of debt, along with changes in the regulatory treatment of different kinds of debt, introduce new uncertainties into the real estate investment equation.

However, LaSalle highlighted uncertainties such as distortions between unsecured and secured lending, uneven access to low-cost real estate credit between countries and within countries, exit uncertainty when unprecedented levels of support for credit markets are eventually withdrawn by central banks and timing/sequencing uncertainty, when monetary tightening occurs before a full recovery in the ‘real economy’ has completely taken hold or is delayed.

The survey cited mezzanine debt, prime assets, near-CBD submarkets and retail as the best opportunities in Europe. It also found niche opportunities in European offices, hotels and data centres.

Commenting on the report, LaSalle global strategist Jacques Gordon said: “Investors should look beyond the most risk-averse positions that have built up in their portfolios since the global financial crisis. Ironically, these ‘ultra-core’ positions may carry some of the biggest risks to portfolio performance in the years ahead, as the delayed economic recovery eventually takes hold. We continue to believe that the investment principles, which maintain portfolio diversification as well as ensure that risks are rewarded by appropriately higher returns, are the best way for investors to proceed in this challenging environment.”

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