Does Core Real Estate offer a Guarantee of Stable Long-term Returns? The Case for Value-based Investing

Prof. Dr. Stephan Bone-Winkel

The “core” real estate market is characterised by a lack of supply and in most cases by correspondingly high prices and low returns. Yet investors remain undeterred. Strong demand would tend to suggest a sure-fire investment. However, it is an assessment that does not stand up if we look at the volatility of annual capital value returns over the last twenty years. Even market reports only give us the rents and initial yields for new core properties. In today’s competitive lease markets, however, a top-ranking property bought twenty years ago will generate neither a premium rent nor a high sale multiplier. In the core segment, new and more up-to-date premium buildings that better meet the requirements of their users are constantly being added to the market. This article examines the consequences that this will have on the future value of core properties bought today and highlights possible alternatives.