Friday Highlight  

Real estate: a lifeboat for investors in troubled waters

Real estate: a lifeboat for investors in troubled waters
  (SevenStorm JUHASZIMRUS/Pexels)

The past few years have turned the world on its head.

The pandemic caused the European economy to shrink, leaving many countries across the region in precarious positions.

Now, volatile markets caused by the war in Ukraine and soaring inflation levels have only added to the struggles.

However, the managing director of the International Monetary Fund’s recent statement that the “horizon has darkened” is not necessarily the whole truth for every industry.

Real estate’s potential as a proven hedge against inflation and instability has meant activity is still high, with London sitting at the top of the charts, contributing €16bn (£13.5bn) during 2021.

But other factors at play mean that we are seeing a sizeable shift in where the investment opportunities lie for fund managers and how the market is performing. 

The pandemic, alongside the rapid rise of ESG, has led to increased demand for alternative assets, a new way of office working, and new requirements for buildings.

If fund managers do not adjust to the complexities of the rapidly changing market, returns will begin to fall, and investors will ebb away. 

Alternative real estate assets hold the key

With investors facing macroeconomic difficulties on multiple fronts – such as slowing post-pandemic recovery, high inflation, rising energy prices and the current geopolitical crisis – fund managers are looking to different asset classes in the hunt for returns.

The two largest traditional real estate classes – office and retail – are going through a period of transition.

The rise of ESG principles has exposed the majority of traditional real estate assets as lacking on this front. This is driving down prices, and encouraging fund managers to look for alternative property assets.

Ten years ago, logistics was the hottest real estate asset class, but now sectors such as student housing and senior accommodation are being viewed as underrated and underappreciated.

Record levels of students were accepted into university or college last year, up 7 per cent from 2020 according to UCAS, and the age profile across the general European population is rising; by 2058 more than 30 per cent of the EU population will be over the age of 65, increasing the demand for elderly homes.

This presents a huge investment opportunity – building new social hubs that both students and the elderly can appreciate will help bring investors and higher rent.

To return or not to return to the office? That is the question

The Covid-19 pandemic entirely upended office life. Post-pandemic, hybrid working is here to stay, and we are unlikely to ever see a return to the office five days a week.

However, this does not mean city centres and central business districts will become ghost towns, and we are beginning to see a situation in London where pre-pandemic numbers are starting to return to the City on Tuesdays, Wednesdays and Thursdays, a trend reflected across Europe, including in cities such as Paris and Luxembourg. 

While companies have a responsibility to encourage employees to come into the office for training and company cultural purposes, it is not about forcing employees back; companies must in fact incentivise them to return.