The possibility of a choppy economic cycle over the next five years should prompt investors to have an overweight position towards liquid real estate, according to a property expert.
“We expect a choppy economic cycle over the next five years,” Adviser Edge head of property Louis Christopher said.
“Intercontinental regional markets are going to record low correlations – that’s what we’re counting on, and ongoing problems with our local AREITs [Australian real estate investment trusts] index.”
As a result, he recommended investors have an overweight position towards liquid real estate.
“If we’re right about a choppy economic cycle, you want to have your finger on the pulse, you want to have your finger on the button to exit if you need to,” Christopher said.
“As we know, through the last couple of years it’s been very hard to exit out of semi-illiquid funds, semi-illiquid positions.”
Christopher recommended a 60/40 ratio between global and domestic REITs.
“In terms of the regional break up, we believe the long-term weighting should be just at the current market cap weightings, but in the short term though we are overweight Asia and we are underweight the other two major regions [US and Europe],” he said.
Christopher also highlighted opportunities in the office market.
“If you want to go a sector player, we do believe that perhaps an overweight exposure to office compared to the long-term market cap weightings is probably the way to go there,” he said.
“I strongly believe that bottom-up stock picking is the way to play it first. Second to that, a regional break-up, and finally if you want to go a sector debt then you go the office sector.”
