Aviva Investors, one of the largest managers of real estate in the UK and Europe, argues that returns in the real estate market this year will come from focusing on quality assets that provide secure income streams and are low in risk. While prime real estate assets are the main focus for the year investors would also be prudent to keep an eye on secondary real estate.

Aviva Investors argues that returns in the real estate market this year will come from focusing on quality assets that provide secure income streams and are low in risk.

Ian Womack, Global Chief Executive for Real Estate at Aviva Investors, said:

“Last year, against a difficult macro backdrop a number of real estate markets delivered robust returns to investors, with the UK in particular returning 8.1% across the year. While some challenges remain for 2012, on the whole we expect the relatively low risk qualities of real estate (compared to other risk assets) will bring resilience to the sector should investor sentiment deteriorate.

“In the UK, continued risk aversion means that the low risk qualities of prime real estate remain appealing to many investors. Supported by favourable relative pricing and potentially further quantitative easing, we believe high quality assets with long leases will also prove resilient. Over the medium term, the income producing qualities of real estate should provide respectable returns.

“Although we think prime real estate is the more preferable asset in today’s markets, over the next year or so pricing adjustments are also likely to create opportunities for secondary real estate.”

“In Europe, our forecasts have been revised downwards due to deteriorating income growth prospects and the fact that policymakers are yet to deliver an effective response to the sovereign debt crisis. Against this backdrop, some markets will perform better than others.

“The appeal of safe haven assets in Europe will typically see investors look to the most liquid markets offering strong, income secure assets; such as, German, France, Benelux and the Nordics. However, peripheral markets may offer cyclical opportunities for investors, especially given the possibility of very strong policy responses.”

“While there is a strong possibility that Asia Pacific will experience slower economic growth in 2012, most countries will benefit from having low levels of indebtedness and effective policy tools at their disposal should conditions continue to deteriorate.

“We forecast strong returns in Australia’s retail, office and logistics sectors. Tokyo also offers a compelling case for investment as it has reached a good point in the economic cycle. Hong Kong and Singapore’s exposure to the global economy means they may experience bouts of weakening sentiment.”

“Looking at the US, occupier market data suggests we reached the start of a recovery phase in mid 2011 with vacancy rates beginning to decline. So far, the recovery has been largely confined to prime real estate and this market polarisation will continue this year. Income risks and the potential for debt related distress are important factors that investors should remain aware of. However, on the whole the US commercial real estate market offers investors a wide range of opportunities.”

Real Estate ETFs

For investors looking to gain exposure to real estate via ETFs, there are a number of funds to consider, tracking a range of different regional property indices.

UK

iShares FTSE EPRA/NAREIT UK Property ETF (IUKP)
The iShares FTSE EPRA/NAREIT UK Property ETF aims to track the performance of the FTSE EPRA/NAREIT UK Index, providing exposure to UK-listed real estate companies and Real Estate Investment Trusts (REITs). TER 0.40%. Listed on LSE.

Europe

iShares FTSE/EPRA European Property Index ETF (IPRP)
The iShares FTSE/EPRA European Property Index ETF aims to track the performance of the FTSE EPRA/NAREIT Developed Europe ex UK Dividend+ Index, providing exposure to listed real estate companies and REITs from developed European countries excluding the UK, which have a one-year forecast dividend yield of 2% or greater. TER 0.40%. Listed on LSE.

iShares STOXX Europe 600 Real Estate ETF (EXI5)
The iShares STOXX Europe 600 Real Estate ETF (DE) aims to track the performance of the STOXX Europe 600 Real Estate Index, providing exposure to the European Real Estate sector. TER 0.47%. Listed on Deutsche Borse.

Amundi Real Estate REIT IEIF ETF (C8R)
Component stocks of the Euronext IEIF REIT Europe Index are a selection of the most representative REITs in Europe, chosen for their market capitalisation and liquidity. TER 0.35%. Listed on Euronext.

Asia

iShares FTSE EPRA/NAREIT Asia Property Yield ETF (IASP)
The iShares FTSE EPRA/NAREIT Asia Property Yield ETF aims to track the performance of the FTSE EPRA/NAREIT Developed Asia Dividend+ Index, providing exposure to listed real estate companies and REITs from developed Asian countries, which have a one-year forecast dividend yield of 2% or greater. TER 0.59%. Listed on LSE.

iShares STOXX Asia Pacific 600 Real Estate Cap ETF (EXI7)
iShares STOXX Asia Pacific 600 Real Estate Cap ETF (DE) aims to track the performance of the STOXX Asia/Pacific 600 Real Estate Cap Index providing exposure to the Asia/Pacific Real Estate sector. TER 0.72%. Listed on Deutsche Borse.

US

iShares FTSE EPRA/NAREIT US Property Yield ETF (IUSP)
iShares FTSE EPRA/NAREIT US Property Yield Fund is an exchange traded fund (ETF) that aims to track the performance of the FTSE EPRA/NAREIT US Dividend+ Index, providing exposure to listed US real estate companies and REITs, which have a one-year forecast dividend yield of 2% or greater. TER 0.40%. Listed on LSE.

iShares STOXX Americas 600 Real Estate Cap ETF (EXI6)
The iShares STOXX Americas 600 Real Estate Cap ETF aims to track the performance of the STOXX Americas 600 Real Estate Cap Index, providing exposure to the Canadian and United States Real Estate sector. TER 0.73%. Listed on Deutsche Borse.

First Trust S&P REIT Index Fund (FRI)
The First Trust S&P REIT Index ETF aims to track the S&P United States REIT Index, an index which measures the investable US real estate investment trust market and maintains a constituency that reflects the market’s overall composition. TER 0.50%.  Listed on NYSE.

PowerShares Active US Real Estate ETF (PSR)
The PowerShares Active US Real Estate ETF structures and selects its investments primarily from a universe of securities that are included within the FTSE NAREIT All Equity REITs Index. The selection methodology uses quantitative and statistical metrics to identify attractively priced securities and manage risk. The Fund will invest principally in equity REITs. TER 0.80%. Listed on NYSE.

Global

iShares FTSE EPRA/NAREIT Developed Markets Property Yield ETF (IWDP)
The iShares FTSE EPRA/NAREIT Developed Markets Property Yield ETF aims to track the performance of the FTSE EPRA/NAREIT Developed Dividend+ Index, providing exposure to listed real estate companies and REITs from developed countries world wide excluding Greece, which have a one-year forecast dividend yield of 2% or greater. TER 0.59%. Listed on LSE.