EUROPE – Real estate has the right characteristics to meet to meet the goals and objectives of European pension funds, according to US group Prudential Real Estate Investors.
In recent research looking at the longer term outlook for real estate compared with other asset classes, the company argues for greater allocations to the asset class to meet the needs of income conscious investors, as Europe’s pension funds will become as they mature.
“Property investment should increasingly become a vital component of the reformed retirement savings schemes in Europe,” says Prudential. It presents pension schemes, whether new or expanded, with a unique asset class, with attractive income, total return and return to risk ratio basis.
Looking at the situation in a number of key pensions markets, it points to different scenarios for equities, bonds and real estate. In the UK for example, the expected return for real estate based on historical parameters, could be between 4.1 and 14.6% annually over the next 10 years. The same assumptions show equities’ equivalent range as 1.6% to 13.5% at the most optimistic, while the bonds the projections are from –3.8% to 4.8%.
For the Netherlands, the equivalent expected annual return range would be 4.0 to 11.5% for real estate, with 1.6 to 17.5% for equities, and -0.1% to 3.6% for bonds. In Germany, the real estate expected return range over the 10 years, 3.4 to 10.4% in the case of real estate, 0.6% to to14.6% for equities and –0.3 to 3.6% for bonds.
In Switzerland, real estate return range over the 10 years, is 2.9% to 9.0%; 0.1% to 13.2% for equities and –2.0% to 2.8% for bonds.
In the past, Europe’s pension funds have maintained “ a relatively small allocation to property,” says Prudential. “With few exceptions, most countries funds hold 10% or less. The group see funds increasingly broadening their exposure to alternatives, particularly real estate.