The global pandemic has taken its toll on the real estate market, but experts at Intertrust Group’s recent webinar identified opportunities for growth.
The growth of the real estate market to its current size following the 2008 financial crisis was predicated on factors that are very different to those currently at play in our COVID-19 world. According to Edwin Chan, Director Business Development at Intertrust Group, the impact of the pandemic has been felt differently in the real estate sphere compared to other asset classes but the effects have not been uniform: “Retail and hospitality have been most visibly hit but other sectors such as online shopping – which is dependent on logistical real estate – has thrived.” During an Intertrust Group webinar on 3 December hosted by Edwin, a panel of specialists discussed these issues and highlighted what opportunities there might be going forward from financing, regulatory and operational perspectives.
With the increased availability of office and retail spaces, repurposing has become an important topic; but Ben Fry, Head of Housing Investment at Gresham House, doesn’t see this as any kind of panacea for the housing shortage in the UK. “In theory, it’s great to look at any empty building and think ‘let’s repurpose it’ but the question is whether the building is fit for purpose,” he says. There’s also a question over whether introducing a lot of repurposed residential property into the market would affect overall prices – but Mr Fry observes that, historically, repurposing stock for housing hasn’t actually had any significant impact on overall residential prices.
One area to emerge strongly from the pandemic is logistics. Robert White, Luxembourg Assurance Real Estate Partner at EY, says that it is “becoming front and centre” for many new fund launches with assets being seen increasingly income products. Katarzyna Dębińska, Local Partner and Advocate at DWF, recognises this trend in the Central and Eastern Europe as well: “Warehouses seem to be the winner of the game in terms of deals volume and deal values – including those servicing last mile logistics. This is connected with the problems the retail sector is facing and the boom in online.”
As many traditional lenders reduce lending to commercial real estate, Mr White welcomes new sources of funding which follow a US model: “There continues to be a pipeline of institutional investors getting exposure to real estate. Unsurprisingly this has propelled a series of real estate debt funds to pop up all over Europe quite similar to what has been seen in the US for many years – where a portion of private debt finds its way to real estate.”
Secondaries funds are also seen as a way of providing investment opportunities for those wishing to gain exposure to the market while preserving an element of liquidity. According to Mr White, they are “a way to resolve the dilemma between value preservation and liquidity”. Gresham House’s Mr Fry sees this as attracting a whole new breed of investor who is prepared to invest long term but appreciates the possibility of liquidising an asset as a future exit route.
Another development is the rise in prominence of ESG issues. According to Mr Fry: “Pension funds are focusing much more on environmental efficiency and the effect this has on maintaining an asset’s value. As we enter a zero-carbon economy over the next thirty years, what type of assets are going to lose their value and what type are going to maintain theirs – and, indeed, grow?”
In fact real estate is very well placed to push forward ESG initiatives, such as green buildings, as well as the reporting on them. Bodies such as the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), and the latest AIFMD consultation paper, are putting increased emphasis on sustainability risks and how they can be quantified, measured and reported.
More and more, the sustainable credentials of a building are intrinsically linked with its investment resilience. What’s needed, perhaps, is a standard assessment framework for sustainability in real estate assets. For Mr White, this would be the responsibility of industry groups – though clearly the Big Four firms could play a role here and would be pleased to contribute.