As the office component of real estate allotments continues to demise, investors prefer low-cost data centers, storage, and accommodation.
Offices, bricks and mortars have suffered the most from this pandemic. However, the impact of the pandemic on real estate from working from home and buying online varies across regions. For example, UK department stores and malls have been hit harder than their German counterpart, which usually features a grocery anchor.
Offices that are able to offer desirable locations and that help companies showcase their brand will thrive more. Moreover, offices will thrive in cities like Tokyo, where many employees would rather come to work than work from home. In contrast, demand from office space in a city like San Francisco, where most workers are now completely remote, will remain weak. London offers opportunities for office investors. Prices are much lower on the Brexit discount compared to other European capitals.
“GFC has offered an opportunity to enter London, and now we are seeing the same thing,” said Tony Brown, global head of real estate at M&G Real Estate. Speaking at FIS Digital, he said investors should distinguish between magnetic offices that are able to lure employees back in with a better offer, than those that are mandatory.
It is important to view the current challenges in real estate in the context of the evolution of the asset class. For example, data centers and logistics outperformed brick-and-mortar retail for a while while legacy stock giants like oil groups and major banks also lost their crowns.
“We haven’t been this positive in the office in a while,” said John Chegg, chief investment officer and head of real estate at Cohen & Stears, estimating a drop in demand for office space at -2 percent to -10. -15 per cent.
This was a sentiment echoed by fellow lecturer Andrew Palmer, chief investment officer at Maryland’s Retirement and Pensions System. After overseeing the allocation of $7 billion to real estate — $1 billion of which has been allocated to managers over the past 12 months — he told delegates that the Pension Fund had been low on the board for a while.
“It is a difficult asset to release; making changes is very expensive.”
Retail opportunities will shift to residential areas. Likewise, people are moving more from their workplaces, which has decentralized GDP and created opportunities around major cities.
Maryland has built a focused portfolio of core managers with allocations including storage and properties at lower price points such as multifamily housing and workforce. Single family rentals and housing for seniors are also in the portfolio, and lately there has been an increased allocation to industries.
However, investing in real estate alternatives such as student housing or multi-family units requires investor patience and local knowledge.
“It’s hard to invest in markets where you don’t have local expertise,” Palmer said. There are sectors that we want to focus on in the portfolio but are not taking advantage of distressed assets; We are not sure that they will return to the peaks.”
Investors flocked to storage facilities and cloud computing – both sectors that were initially found in the listed market. This is the reason behind the current trend of big-money investors focusing on the formation of their sector and using the listed market to access real estate sectors such as big data centers and healthcare companies, Chigg said.
“We’re seeing investors sell billions of dollars in office buildings and malls and proliferate self-storage facilities, as they shift from large assets to aggregated small assets.”
Low return on logistics
Money flowed into the logistics and returns are now significantly lower. Although panellists noted that there are some opportunities globally in the field of logistics, the desire for logistics has waned.
Instead, investors should focus on healthcare, self-storage, data centers, towers, eclectic offices, and retail opportunities.
Real estate and infrastructure investors often compete for the same assets with assets such as data centers and mobile phone towers that cross between the two groups. It is a symptom of more money chasing fewer opportunities and investors become more active and resilient. Chigg also concluded that it is a symptom or development of real estate from simply looking at them as “shiny” buildings.
Ultimately, investors want a physical asset that has positive supply and demand trends. It doesn’t have to be shiny and pretty.”
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