In Focus: Megatrends  

Can advisers benefit from new economy real estate?

  • Learn about the new economy real estate megatrend
  • Understand the risks and opportunities in new economy real estate
  • Learn how to assess risk in thematic investing
CPD
Approx.30min
Can advisers benefit from new economy real estate?
Electric charging points are necessary for our switch to greener living (Credit: Carmen Reichman)

When investors think of real estate they often think of commercial buildings, warehouses or hotels, but perhaps less about the brick and mortar underpinning the technological developments of our time.

Yet, for some investment houses, this area is precisely where value is to be sought.

From cell towers to data centres, to logistics hubs supporting our online way of life, to the green energy revolution underpinning the construction of new real estate, opportunities to invest in this space abound. But are they worth considering?

Tech changes everything

As more people globally rely on mobile telecoms technology, and are quick to adapt their lives to the possibilities created by 3G, 4G, 5G, and soon possibly 6G, the infrastructure beneath these technological demands is experiencing somewhat of a boom. 

Cloud computing, artificial intelligence, and online retail logistics are all big topics that people might already be familiar with, says Christopher Gannatti, global head of research at Wisdom Tree, "and each one of them, if you go under the hood, requires real estate for successful operation."

Christopher Gannatti is global head of research at Wisdom Tree

 

 

From cell towers to data centres, the bigger the tech, the more infrastructure is needed, says Chris Versace, chief investment officer of Tematica Research and manager of the Cleaner Living ESG-S Ucits ETF.

“Because of the characteristics of 5G, you actually need more towers than you did with 3G or 4G, particularly to get those higher speed lower latency,” he says.

"As we continue to see more mobile data be consumed, those rental rates are going to continue to move higher. And I think if you were to look at some of the earnings transcripts from American Tower and the others, you'll see that.”

In its Q1 2022 results out in April, American Tower, which provides wireless communications infrastructure globally, reported revenue growth of 23.2 per cent over the year, with tenant billings growth of 10.3 per cent.

It predicted macro towers “will continue to be critical infrastructure for carrier network investments over the next decade and beyond”, according to its statement.

5G needs more infrastructure than its predecessors 4G and 3G (Credit: Carmen Reichman)

For WisdomTree cell towers is the biggest underlying exposure within the new economy real estate megatrend, followed by logistics and e-commerce.

But for Jane Edmondson, CEO of EQM Indexes and manager of the Global Online Retail Ucits ETF, a lot of the new economy real estate is linked to e-commerce.

She says a decade ago, e-commerce related industrial infrastructure Reits made up about 9 per cent, but because of the rise in e-commerce, they represented 32 per cent of the total market cap of the of the Reit sector by 2019 - as the chart below shows.

“Things like old warehouses are now being converted into distribution logistics centres to support e-commerce, and online retail in the supply chain.

"In fact, they're even converting old shopping malls and big box retail stores to facilitate logistics as well. So that's truly a big opportunity.”