Institutional property weightings “are still absurdly low”, according to Robert Houston (pictured), chairman and chief executive of ING Real Estate Investment Management (REIM).
Unveiling the results of ING REIM’s yearly investment survey at its 15th annual seminar in London on Tuesday, Houston said: “However, 92% of life and pension funds are to increase their property weightings next year.”
Turning to his own funds, Houston said he had argued for a weighting of 25% but had been overruled by his client board who felt more comfortable with a weighting of 20%.
The average institutional property weighting of 7% compares with a peak of 19% in 1981.
The ING REIM survey also showed a shift in expectations from property investors who, it said, are now prepared for returns of 8% or less.
As a result, ING REIM is projecting increased demands and lowering yields.
As yields are rerated, ING REIM forecasts total returns from property of 12% over the next three years.
Ian Whittock, ING REIM’s head of research and forecasting, predicted commercial “rental growth to be 2.4% pa over the next cycle” and said “it is expected to peak at circa 8% pa in 2008”.
Turning specifically to offices, Whittock said that an improvement in office take-up was most likely to come from the West End, where the vacancy rate is currently running at 10%-11% but “it needs to get down to 7% before we will see a rise in rents and we predict this will happen in late 2005.”
Rental growth will be slower in the City “with no improvement until late 2006 to 2007.” Top City rents are between £45 and £48 per sq ft (£484 and £516 per sq m), but Whittock calculated that “we need rents of £55 per sq ft (£592 per sq m) before we will see development activity.”
But the worst market to have exposure to, he said, was the Thames Valley “where some towns have a vacancy rate of more than 20% and it will not come back until 2008.”
References: EGi News 14/11/03
