Real Estate

Why you should look at REITs for yield, says Goldman Sachs Asset Management’s Sheila Patel

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With interest rates set to remain lower for longer, real-estate investment trusts (REITs) have become prey in the global hunt for yield, said Sheila Patel, CEO of International Goldman Sachs Asset Management.

"The number one thing that has been concerning clients all year, underlying everything, has been the low yield environment," she told CNBC's "Squawk Box." "People have looked look to REITs as a source of yield when the bond market hasn't been able to provide it."

REITs are investment trusts which own properties, such as apartment buildings, shopping malls, student housing or warehouse space, and then pay out most of the rental income as dividends for investors.

The bond market certainly hasn't been cooperative with investors seeking income.

The benchmark 10-year Japan government bond was yielding around a negative 0.226 percent on Monday, while the was at negative 0.003 and the U.S. 10-year Treasury yield hovered around 1.556 percent.

That compared with the Vanguard REIT exchange traded fund (ETF), which tracks the MSCI U.S. REIT Index and holds around 150 stocks, yielding around 3.55 percent.

There are other reasons to look to REITs, in addition to a pick-up in yield above the bond market, Patel said.

"On a global basis, I think real estate is quite interesting, but the REIT space particularly because people need liquidity these days," she said. "The market's moving too fast, so sometimes some of the direct investing funds are more difficult."

But Patel said it's important to be selective in the sector.

"You really want to think about the trends in real estate," she said. "Shopping malls are having a tough time. People are buying online, but what you need if you buy online is distribution centers, all sorts of infrastructure related to that. So there are a lot of different ways to play in the REIT space."

Additionally, the possibility that the U.K. may exit the European Union (EU) was another risk for property there, she said.

"We've tended to be underweight U.K. and obviously now post-Brexit, there are some reasons to worry about real estate in the U.K.," she said.

But while Patel may be looking outside of the bond market for yield, that didn't mean she expected a collapse in bond prices. The segment had risen sharply in price as several central banks globally pursued negative interest rate policies, spurring calls that bonds were in bubble territory. Bond prices move inversely to yield.

"Everybody looks for the source of what might pop a bubble if you believe there is one," Patel said. "At the end of the day, you have to look at the demand side as well and demographics and so with pensions and the need for fixed income investing, it's hard to see where people go outside of bonds."

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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1