Macro concerns ‘masking property’

Looking into 2012, he said the disparity between direct property market fundamentals and securities in the sector is as wide as it has ever been.

“The current rate of bricks and mortar development is insufficient to satisfy even moderate demand levels,” he said.

“Such looming shortages of space would usually lead to potential upside in property-related share prices but this has not happened as equity markets have been solely driven by the macro picture.”

Mr Rehlaender – who runs the £550m Schroder Global Property Securities fund that invests in equities related to the property sector – said he expects the sector’s fortunes to improve for three key reasons.

First, the market has become ‘over-shorted’, with many betting that shares will fall in value rather than rise, and any turn in sentiment will force a sharp rally to cover the borrowed shares.

Meanwhile, he said property markets are generally in short supply of product and demand for real estate assets by private equity investors and institutions remains strong.

Finally, companies have managed their capital much more effectively than they did in 2008 and are well funded to take advantage of market opportunities that now abound.

“The critical issues today for the property sector are largely at the macro level, as property markets around the world are generally in good shape,” added the manager.

“Market fundamentals are far better than property share prices would suggest, as equities heavily discount macroeconomic headwinds. In fact, if one could ignore the media, one would discover an investment environment that is the best it has been in many years in terms of quality of properties, realistic return assumptions and well-capitalised owner/operators.”