Overseas lure for investors

THE uncertainty and gloom pervading overseas economies have left investors with a mixed outlook.

THE uncertainty and gloom pervading overseas economies have left investors with a mixed outlook.

Cashed-up high-risk investors say that at current prices, some of the more stable European markets provide good buying opportunities.

Other analysts are more cautious, saying the US market may be a less stressful option for the larger institutional investors.

But as more cash flows into Australian superannuation funds at the same time as interest rates fall, some managers will start to look at overseas markets for higher-yielding returns.

According to the latest CBRE Global Capital Value Index, there was a moderation in quarterly growth, as sentiment in key investment markets was mixed.

In fact, this quarter's growth rate of 0.3 per cent was the lowest since the fourth quarter of 2009, when the index emerged from its decline.

The paper says that notably, though, the Americas Capital Value Index maintained the lead for quarterly growth, with a 1.5 per cent quarter-over-quarter increase.

Meanwhile, Asia Pacific, which previously experienced the strongest growth rates of the three regions, averaging 4.2 per cent from the second quarter of 2010 through to the third quarter of 2011, experienced only a quarterly increase of 0.6 per cent in the first quarter of 2012.

The head of real estate research at Fidelity Worldwide Investment, Matthew Richardson, says in a report to clients that, contrary to misconceptions, there are still good investment opportunities in real estate.

"Given current prospects in other asset classes, commercial real estate could be one of the most obvious investments to make this year," Mr Richardson says.

"But while we have seen a strong recovery in the prime markets, the recovery is now broadening out in terms of geography and asset type with investors showing a greater appetite for risk.

"The sweet spot of opportunity is now shifting from prime CBD property to 'second-tier' assets: investment-grade, high-quality properties on the fringes of prime CBDs or in key regional centres within core markets.

"In this area of the market, long-term investors can target a compelling combination of secure high initial yields and the prospect of rising capital values over the next 12 to 18 months."

The investment director of real estate at Fidelity Worldwide Investment, Adrian Benedict, also told clients that European property in particular offers investors an attractive income yield, with office and retail yields above 5 per cent and industrial yields in excess of 7.5 per cent.