From the UK to Japan, big real-estate investment trusts (Reits) have been one of the most significant beneficiaries of quantitative easing, the experiment in ultra-loose monetary policy that is now finally being scaled back or 'tapered' in the US.
As shares offering exposure to property, Reits have received a double boost from the hunt for yield precipitated by the global plunge in interest rates half a decade ago. Investors have poured money into high-end property as a low-risk alternative to bonds and an inflation hedge, buoying Reit portfolios. And fund managers and private investors have bought Reit shares. The result is that, after an 145 per cent gain since the historic low of March 2009, compared with 95 per cent for the wider market, both the shares and the underlying portfolios of the FTSE 350 Reits look expensive relative to history.
So does that mean investors should sell up? There are few historical examples to fall back on, but that of Japan is not encouraging. The Bank of Japan tapered its quantitative easing programme in March 2006, and precipitated a 24 per cent fall in bank stocks over the following months.
But it’s not that simple. In 2006 investors had plenty of debt-fuelled alternatives to Japanese equities. Now that interest rates are still close to zero everywhere, yield is harder to find – and there's no sign that will change. Indeed, even as outgoing Federal Reserve chairman Ben Bernanke committed to reducing the central bank’s bond purchases from $85bn to $75bn a month and signalled that the reductions would continue, he stressed that the current near-zero target for the Fed Funds rate would “likely remain appropriate well past the time” that unemployment falls below 6.5 per cent.
That suggests investors will stick with prime property for the foreseeable future. Brokerage Liberum Capital called it a "best-case outcome for real estate equities". Investors clearly agreed, sending shares in British Land (BLND), Land Securities (LAND) and Hammerson (HMSO), Britain's largest Reits, 2-3 per cent higher the day after Mr Bernanke's announcement.
