Global Real Estate Securities: 2010 Outlook

With many of last year’s most worrisome risks no longer an immediate threat, the returns produced by real estate securities in 2010 are likely to be relatively normal, and certainly less volatile than the past two years.

Executive Summary

• After a spectacular recovery in 2009, public real estate should continue to provide attractive returns in 2010 due to the improved tone in the capital markets and investors’ increased appetite for risk.
  
• Commercial real estate fundamentals will likely remain weak throughout 2010, but the vast majority of the decline has already occurred. While it is difficult and dangerous to generalize, tenant demand in most major property markets around the globe should begin to firm this year.
  
• Given their attractive cost of capital and relatively low-leverage balance sheets, public real estate companies are poised to take advantage of distressed opportunities.
  
• Although total returns for publicly-traded real estate will have a hard time matching last year’s outsized gains, real estate securities remain an attractive vehicle through which investors can participate in the recovery in the commercial property markets. Even with last year’s gains, public real estate securities remain far below peak levels.