European investors should consider focusing on the GDP sensitivity of property sectors as the coronavirus outbreak continues, rather than being 'spooked' by volatile valuation shifts, according to new findings from real estate research firm Green Street.
The firm's latest report tracks how major equity indices have declined by 20% and 30% in the US and Europe respectively in the last couple of months, as markets try to gauge the widespread significance of the crisis.
Despite a number of sectors, including hotels and retail, being affected negatively, Green Street notes that the listed property market in Europe has outperformed key local benchmarks in this period, with its US equivalent delivering results inline with the major indices.
As volatile markets continue to yo-yo, Green Street suggests that 'nimble investors can take advantage of inter-sector property price movements that deviate substantially from their underlying historical economic sensitivity'. While its report uses the US as the 'main laboratory', the findings are interesting for European players, with some similar trends emerging.
Overall, the report suggests that 'real estate should outperform other equities in a downturn', which has indeed been the case in Europe in recent weeks, albeit with wide divergence between the sectors.
While some sectors are more sensitive to fluctuations in the wider economy - such as lodging, offices and retail - certain territories may prove more resilient. Sectors which are less subject to fluctuation include self-storage, residential and medical offices.
Green Street believes that Continental European property companies on the whole rely too much on debt, but those with a healthier balance sheet are not always distinguished by the markets - something savvy investors could take advantage of. Digging down into which companies are exposed to development risks, too, has been largely overlooked.
In the long-term, sectors including UK industrial, UK healthcare, and German residential may prove to be some of the most resilient for investors seeking refuge. While retail across all markets seems likely to experience the greatest downward revaluation, 'industrial could prospectively hold steady, or even experience a slight gain', the report concludes.