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REITs Long-Term Positive for European Real Estate

09/27/2011 | By Matthew Bechard

Identifying real estate investment opportunities for a global portfolio is difficult enough, doing so in an increasingly turbulent economic environment is that much more challenging.

Frank Haggerty, portfolio manager with Duff & Phelps Investment management, sat down with REIT.com during the European Public Real Estate Association's annual conference in London in early September to talk about the markets he is highest on and where he sees trouble on the horizon.

In Europe right now, Haggerty said he sees the best real estate investment opportunities in European self storage, the Nordic countries and German residential. On the flip side, Haggerty said Italy, Greece and Spain are among the most challenging markets right now. In addition to larger macro issues being a factor, Haggerty said he also factors currency issues into account when making his forecasts, which could mean a country like Switzerland may also face issues.

The expansion of REITs across Europe has not had the level of impact many would have hoped, Haggerty said.

"We have seen the adoption of the REIT structure in the U.K. and Germany in the last number of years. It has not necessarily created the capital formation that many would have expected," he said. "Obviously, the environment has been fairly challenging since the introduction of those REIT structures."

However, Haggerty said the initial reasons why those REIT regimes were created are still sound. Over time, he said you will see structural changes to some of those REIT structures that might facilitate further growth in the market.

"REITs are definitely a long-term positive for real estate capital markets in Europe," he said.

Looking at the U.S. REIT market, Haggerty said Duff & Phelps had predicted a 6 percent to 8 percent total return at the beginning of 2011. Despite some ups and downs impacting the sector throughout the year, Haggerty said he still sees a high single-digit to low double-digit total return from U.S. REITs in 2011.

"More importantly, what I would highlight is that post a bear market we typically see an up-cycle from five to seven years in securities prices," Haggerty said. "It is early days, and we are still only about halfway through an up-cycle in securities prices."