Improving Fundamentals Bolster CRE Earnings Outlook

By Sorohan, Mike; Murray, Michael | Mortgage Banking, September 2011 | Go to article overview

Improving Fundamentals Bolster CRE Earnings Outlook


Sorohan, Mike, Murray, Michael, Mortgage Banking


Despite a general pullback in the second quarter, most global real estate companies posted positive results. A report from LaSaIIe Investment Management, Chicago, said improving real estate fundamentals should help drive healthy earnings growth over the next few years, with world wide revenues expected to be a strong source of that growth.

According to LaSalle's Quarterly Review and Outlook, yearto-date, property stocks have gained 8. 1 percent; the broad market index is up 3.3 percent. Ernst-Jan de Leeuw, head of LaSalle's real estate securities (Europe), said the company expects worldwide earnings per share growth to be in the mid- to high singledigits per annum through 2013, with the strongest growth in the United States, United Kingdom and Hong Kong.

"The majority of public real estate companies are well positioned for the current market environment with higher quality assets, strong balance sheets and quality manage ment teams, de Leeuw said. "With the rebound in stock prices, capital-raising activity completed and access to the debt markets in favorable lerms, the public companies are in a strong position to pursue acquisition opportunities and grow their portfolios."

The report noted the outlook for real estate securities remains closely tied to credit markets and the outlook for the economy. The most recent economic forecasts for the global economy, while still showing reasonable growth of 3.4 percent in 201 1 and $.9 percent in 2012, are somewhat lower than those made earlier in the year as credit concerns remain in the euro zone and efforts by Asian governments to control speculation and inflation may lead to somewhat slower growth in those economies.

Real estate fundamental trends are expected to vary according to the growth of individual economies and the pace of new supply. In the United States and Europe, the report anticipates a gradual improvement in real estate fun damentals over the next 12 to 24 months driven by moderate growth in demand and limited new supply.

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