Charter Hall is looking forward to a better outlook for property investing, considering itself well placed for improving investor sentiment.
“I think there will be increased interest in direct real estate from both wholesale and retail,” said Charter Hall joint managing director David Harrison. “But I think there’s also going to continue to be a place for listed real estate.”
Harrison said the interest in listed real estate investment trusts (REITs) would improve over the next 12 to 18 months as people got more confident about earnings.
“And more importantly, retail investors feeling that their distributions will start to rise, because they’ve had a pretty horrid time in terms of falling distributions,” he said.
“Looking forward, the conundrum in the REIT sector is that there is confidence that real estate values are stabilised and will at least start rising in line with income growth in the underlying properties. But there’s an earnings drag. For a lot of REITs, FY11 is going to be the trough of earnings.
“Interestingly, and quite ironically for the unlisted sector, we think the trough of earnings was FY10 and we see FY11 earnings growing above FY10 levels.”
Harrison said that the real difference between the direct market and the REIT sectors was that the REIT sector was still catching up with the real cost of debt.
“Pre-global financial crisis debt facilities have rolled off in the last 12 months and had to be refinanced at higher margins, which means that the cost of debt is reducing earnings in FY11 versus FY10,” he said.
Harrison asserted that all three mainstream asset classes – office, retail and industrial – were well positioned going forward.
“We do believe that there will be strong income and capital growth over the next three or four years and we intend to capture bottom of the cycle acquisition opportunities to the benefit of our investors.
“Real estate is starting to be seen as a defensive investment against the volatility in the general equities market and at this stage of the cycle people redirect capital to defensive asset classes.”
