Global real estate investment trends; assets to buy in 2021

Globally, investment activity is expected to increase by 50% in the second half of 2021 as real estate markets rebound, according to the Colliers International 2021 Global Investor Outlook report.

London, an image by Clifford on Unsplash

Nearly 100% of investors surveyed by Colliers said they will be expanding their real estate portfolios this year, with the logistics sector cited as a popular choice.

The least preferred, retail and hospitality assets, are reportedly offering investors an opportunity to buy distressed properties at discounted prices in excess of 20%.

Sustainable investing to become a norm

Sustainable investing, commonly known as Environmental, Social and Governance (ESG) is now a mainstream investing philosophy, according to the survey, MSCI Investment Insights 2021.

ESG refers to non-financial factors that have a long-term impact on the environment, social and governance elements. Investors adopt these factors in assessing a case for their investments.

According to MSCI, 73% of investors surveyed plan to increase ESG investment in 2021, and 36% see the ‘social’ aspect as a larger proportion of the mix by the end of 2021.

Countries such as the UK (50%), the USA (48%), and Japan (45%) had the biggest shifts on ‘social’

“In the space of six or 12 months, investors have gone from thinking about ESG as a side issue to thinking about it as core to the future of their funds. It’s a big shift, and in my career, I haven’t seen a shift quite like it,” says Roger Urwin, an adviser to MSCI.

In the Europe, the Middle East and Africa (EMEA) region, 68% of investors said ESG will drive their investment decisions in 2021 to at least some extent, and this is likely to increase the demand for certified assets, says Colliers.

Knightsbridge Office Park, Bryanston Johannesburg

For South African diversified real estate investment trust company, Emira Property Fund, ESG has always been a priority, says CEO, Geoff Jennett.

“We are mindful of the environment and communities that we invest into, and our investment strategy is aligned to our ESG objectives.”

Asset pricing and performance

Furthermore, the MSCI survey notes that investors are increasingly keen to understand the common risk factors that drive performance across all asset real estate classes.

Eileen Andrew, MSCI Vice President, says that pricing is a big MSCI trend, and is perhaps something for many investors to watch for in 2021. She points out that in the last 18 months, values have been falling globally.

Andrew was speaking at the University of Cape Town’s Urban Real Estate Research Unit seminar in early February (2021).

“Investors are extra careful about valuation and the methodologies that are used, and want clarity on asset prices,” says Andrew.

In South Africa, devaluations have been happening across market segments, with large shopping centres having the most asset value reduction, according to the MSCI South Africa Biannual Index June 2020.

Investing in the SA commercial property sector

Commercial property sectors that are experiencing demand will be favoured by investors this year, according to John Jack, Galetti Corporate Real Estate CEO.

 “Demand will come from those industries that haven’t been impacted negatively, so home improvement and local travel accessories for camping, as well as services surrounding those industries are an example of a sector that has fared well over the past year.”

Additionally, we will see demand stemming from consolidations, in that businesses may take the opportunity to consolidate to improve cost efficiencies, points out Jack.

Talking about commercial property rising trends for 2021 in South Africa, Jack explains that a low interest rate environment coupled with excess supply makes for a dynamic investment landscape.

“Pension funds and private investors with pension fund backing are currently the most active investors in the sector. We are seeing very sharp yields for long-term leases in the logistics space because of the low interest rate environment. For prime assets, we have seen yields in the low 7%.”

Jack says that there is a significant number of foreign interest, mainly from Europe. “The logistics facilities are the most preferred sector to invest into at the moment.”

Since mid-2020, industrial property was hot commodity, and this is set to continue in 2021, largely driven by the need for on-site manufacturing and a rise in e-commerce, says Jack.

Across the world, investors prefer the industrial and logistics property market, which is seen as a stable asset with predictable cash flows, according to Colliers.

Offices still the flavour of the month

Investors in the Asia-Pacific region (APAC) have identified the four most popular office locations, including Sydney (55%), Melbourne (53%), Singapore (42%) and Hong Kong SAR (41%).

Hong Kong City View: Image by Ruslan Bardash on Unsplash

Of the top three classes that investors will be targeting in 2021, offices accounted for 31%, followed by logistics/industrial (25%), and data centres (11%).

Terence Tang, Colliers Asia: Capital Markets & Investment Services, managing director says that confidence in the office sector is also based partly on the realisation that for many people in the region, living conditions are not conducive to long-term or permanent working from home arrangements.

 “Though the nature of the office space might change, people have realised that they need the opportunity an external environment that supports collaboration, and the development of a corporate culture,” says Tang.

In the EMEA) region, Colliers reports that 86% of those surveyed were in favour of the office sector, with cities such as London and Munich appealing to investors.

South African investors are also interested in vacant office space, and are buying up properties at significantly reduced rates, notes Jack.

He says that the office is not dead, pointing out that they anticipate many occupiers returning once things are settled.

During a media briefing on the fund’s interim results to 31 December 2020, Emira said that the requirement for physical office space is still there, as human interaction is important for companies and their staff.

While occupiers are cautious to make long-term decisions, businesses and corporates are reconsidering their office strategies.

“In a bid to reduce space, many office users are considering a flexible work model incorporating hot-desk setups, and a partial work-from-home approach,” says Jennett.

Emira’s office portfolio consists of 20 quality properties located in sought-after nodes.

Edited by Gudrun Kaiser

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