Global investment giant Kohlberg Kravis Roberts has advised clients to boost their target allocations to real estate from 3% to 5%.
In its latest research paper, KKR suggests that investors should look to non-core and opportunistic real estate plays as core and prime assets begin to be overpriced.
Real Estate: Focus on Growth, Yield and Inflation-Hedging suggests that the asset class provides an “elegant way to own an income-producing inflation hedge” and points out that the increased pace of deleveraging by banks in both Europe and the US will provide a wealth of opportunities for investors.
However, the KKR paper advises that investors need to be discerning: “Although real-estate investments provide yield, growth, and inflation hedging (all key underpinnings to our long-term macro view), we do think selectivity is warranted at this stage in the cycle. Specifically, today we feel that a decent chunk of the prime, or core, global real estate asset class is fairly valued and, in some cases, outright expensive. By comparison, we believe there are compelling investments in the non-core and opportunistic segments of the real estate market that can provide investors with a more attractive risk-adjusted return profile.
“The key, we believe, is to understand which locations will benefit from secular growth drivers in employment, including manufacturing re-shoring, oil and gas exploration, education, and technological/healthcare advances.”
sophia.furber@estatesgazette.com
