The real estate correction is now over for core assets, says Abrdn, as it forecasts residential, retail and industrial to outperform.
The firm said the UK was leading the way on the global recovery, buoyed by the result of the general election.
Abrdn has now upgraded its investment view on real estate from underweight to neutral, and is overweight on sectors such as residential, industrial and retail. Overall, it expects total returns from UK property to average 8% per annum over the next three years – although forecasts are no guarantee of future results.
While the wider real estate market has focused on “value add” investment, Abrdn believes that core real estate will deliver the most appealing opportunities. It is forecasting further valuation falls among lower-quality real estate assets, as the cost and time to redevelop weaker properties remains a challenge.
Global head of real estate Anne Breen said: “We believe that the real estate sector has now mostly repriced following readjustments as the era of cheap debt came to an end. As a result, we have now upgraded our house view on real estate to neutral after being underweight for around two years. Essentially, we think it is no longer the time to be underweight to real estate versus other asset classes.
“We believe this real estate cycle is very different to previous ones, as rental income from property has not been challenged in the way it was before. That means the recovery for future-fit buildings should be faster – boosted by lack of high-quality supply.”
She added: “However, not all sectors are made equal. We particularly like residential, because of supply-demand imbalances; industrials and logistics – due to the need for modern warehousing to support global and local distribution; and some areas of retail that have benefitted from changes to the way we shop since the pandemic.”
Abrdn said it was “more cautious than most” on offices, saying it believed that only a small proportion of the market in prime central locations would do well.
“For a large part they face higher tenant churn and more capital expenditure requirements – with large pools of global capital looking to reduce overall exposure to the sector,” said Breen. “We therefore advocate a very cautious and selective approach.”
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