M&G Real Estate has emphasised the gulf between modern quality office stock and secondary properties.
The investor’s Global Outlook report, presented online on June 14 by Jose Pellicer (pictured), head of investment strategy, put property as ‘well-positioned’ to benefit from a potential upside of rising inflation. The report is M&G’s mid-year assessment of the global economy.
In his presentation Mr Pellicer said a town centre building less than five years old with at least an EPC B would be the kind to attract tension between potential occupiers while secondary stock is now out of favour.
What he called the Great Resignation, where people decided to reassess their lives after Covid had resulted in labour and skills shortages, pushed up wages and added to inflationary pressure.
The report suggests even the logistics market faces new challenges as consumers cut back.
However in the housing market, the private rented sector is seeing unprecedented demand with rents likely to rise significantly.
Mr Pellicer said: “Inflationary interest rate pressures will have a deeper impact on secondary assets in weaker locations, with shorter lease lengths, voids and capital expenditure required to bring them up to date, in comparison with prime assets.
“At the same time, the continuing uncertainty around the war in Ukraine and the wider political, social, and economic unease it has created across the world – means that investment decisions need to be mindful of the prospect of renewed volatility and unforeseen changes in conditions.
“Performance on a par with 2021 will be difficult to achieve across all real estate sectors, so it is crucial that low risk investors remove risk and create portfolios which offer long-term inflation protection.
“For higher risk investors who remain active, opportunities will present themselves in time as liquidity falls and pricing changes.”
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