Real estate investment has bounced back strongly as the world comes to terms with Covid, with exciting new asset classes and so-called “secondary” locations on investors’ radar for the first time. At the same time, many traditional bricks and mortar investments may never again deliver the returns property funds once relied on.
A detailed analysis of investment markets around the world by Moore Global, reveals that property has weathered the Covid storm much better than many commentators predicted – though significant shifts in where we live, work and relax will have a profound impact on investment patterns in years to come.
“There is plenty of money to be made by people who do their research and understand how the dynamics of the world have changed,” says Guy Richardson, partner at Moore Kingston Smith in London. “Investors need to assess whether their strategies are fit for purpose, then it is about taking calculated risks. It is recognising your traditional bit of the market may have gone south and looking elsewhere.”
And where are the big opportunities?
“They are in what are referred to as ‘beds, meds, and sheds’”, says Paul Tostevin, director in Savills World Research, who conducted the analysis. “The beds are good quality residential, the meds are medical technology and life sciences which now have much higher priority, while the sheds include distribution warehouses to handle the surge in online retail brought about by Covid.”
While investors ponder where to put their money, developers also have difficult decisions to make about what type of projects will be most attractive in the long term to both tenants and the institutions that eventually buy their projects.
“Covid has changed the appeal of certain types of assets and developers are now much more focused on what can continue to generate income at close to full levels if we had a similar mass disruption in the future,” says Ross Sicuro, director at Moore Australia (SA).
“For example, big shopping centres have been hit hard, while convenience food and service properties in suburban locations have done quite well. That is because they have continued to trade well as people have chosen to stay local.
“We are going to see a return to the office but the fit-out requirements are going to change because they will need to be ‘Covid-proof’. The right ventilation systems and fewer touch points will be important considerations and the working environment will have to be geared towards cool, collaborative spaces rather than rows of workstations and computers.”
The assessments of future trends by Moore experts accompany research conducted by international property group Savills which analysed investment intentions for the next 12 to 18 months.
The future of office working and the demise of high street shopping are two widely-predicted impacts of Covid that initially led major commercial landlords to pull back and, in several cases, shutter their funds to stop frightened investors baling out.
However, Savills found offices will continue to be the dominant asset class in real estate. A survey found 97% of respondents expected office yields to be static or fall over the 12 months to summer 2022, indicating that investors predict strong returns.
Paul Tostevin at Savills explains that offices have always bounced back strongly after the last three financial downturns. While working from home dominates debate in Europe, and is a discussion topic in the US, workers have been back at their desks in Asia for many months and it is “business as usual”. Four out ten ‘tech hotspots’ identified by Savills are in China and continue to grow fast.
Retail faces a tougher future but Covid has offered an opportunity to rethink the high street.
“There is a fair bit of risk but those that get it right can still see big returns,” says Moore’s Guy Richardson. “Online has reduced activity but you might find in certain towns and cities a centralised centre still performs well because it is well-designed and has the right mix of retail and leisure. Meanwhile, a small out of town retail park might do well because of its position relative to where people are living now and how easily they can access it.”
Richardson believes many shabby concrete shopping centres built in the 1970s have probably passed their useful lives and are becoming unviable – however, repurposing them will require more than a passing nod to the environmental impact of any new design.
“The environmental, social and governance agenda, or ESG, is now very important and everybody is making decisions about where they are going to put their business based on that,” he says. “I have seen it play it out with my clients in terms of what they look to acquire and what businesses look at as an occupier – these factors can now be the differentiator between a project getting funded and enjoying healthy occupancy, or not.”
This Moore Intelligence article was contributed by our Moore Global leaders from across our Moore Global Network. For more information, reach out to your nearest member firm or contact us today.