A long-term approach and diversification
Real estate investments are not without risk. Property prices will not necessarily always go up. There is also currently uncertainty as to how the market will develop in future. The coronavirus crisis may result in greater value being placed on living space in the long term, which could increase the demand for residential property. Conversely, employers are cutting back on office space due to the trend towards working from home, which may have an adverse impact on commercial property prices. The low interest rate policy is also leading to a constant increase in the supply of real estate and a rise in vacancy rates. It is difficult to predict how these changes will impact on supply and demand.
This means that, as in other asset classes, adopting a long-term perspective is the best approach when it comes to real estate. Investors should not focus primarily on short-term fluctuations, but instead on the fact that living and working space play a key role in society. For this reason, real estate funds are a key element in the portfolios that we manage. This enables our customers to benefit from long-term developments on the real estate market, while ensuring phases of weak performance are withstood thanks to diversification with other asset classes.
In the investment committee, we also evaluate the premiums – in other words, whether the valuations of real estate funds diverge too far from those of the properties managed by the fund. We regard a sharp rise in premiums as a sign that a more cautious approach is required. Premiums have recently reached record highs that are barely sustainable, leading us to realize gains and give the asset class an underweighted position in our portfolios for the time being.