Consistent with most asset classes, commercial real estate’s reputation took a battering in the aftermath of the financial crisis, with sharp declines in both pricing and transaction volumes. Fresh concerns were raised about the liquidity and volatility of the sector, as many investors found themselves unable to reduce their exposure to the asset class as quickly as they may had
hoped. Notwithstanding the experience during the depths of the crisis, investors have returned to the sector over the last 18 months, demonstrating that its role as a core asset class remains intact. This has largely been driven by the low returns available on other asset classes, especially in the form of current income. Though investors are likely to become more cautious about committing capital in this environment, over the longer term, institutions are likely to reposition their portfolios towards assets that offer more stable income streams, less volatility, and some downside protection against extreme events. This shift is likely to take some time to play out, but it should eventually feed through to real estate pricing and transactions, helping to strengthen the sector’s position in a multi-asset portfolio.
Source : UBS AG