The outbreak of the pandemic has ushered in a new era – an era that is simply about survival. However, much has remained: the old structures, the built world, investments in real estate and, unfortunately, climate change. What kind of economy and investments, what responsibilities shape us? Rethinking is required. An outlook on 2021.
Klaus Schwab, founder and spiritus rector of the World Economic Forum, recently wrote in an article for the Neue Zürcher Zeitung: “The advocates of a pure profit striving forget that a company not only has an economic function, but is also an essential part of our social community, our society. It is in the self-interest of every company thinking in the long term to assume this social responsibility.” On the concept of trust capital, the Executive Chairman of WEF adds: “The best capital a company has is trust. Building this trust succeeds when customers, employees and today increasingly also lenders know that the management of a company is not only evaluated on the basis of financial success.”
This puts us in the middle of the topics whose importance will increase in 2021. They can be summarised in the three letters ESG: Environment, Social and Governance. The increasingly emerging discussion about the term responsible ownership is also part of the ESG spectrum, in which, however, climate change alone demands that only financial profit maximisation can no longer be the focus. Instead of the “higher, faster, further”, the steep curve upwards, which diminishes in times of pandemics anyway, keeping one’s feet on the ground seems to be called for.
Staying on the ground is the word that leads to the outlook for investments in real estate. For it is precisely on the ground where all buildings are located. After all – and this is the good news at the beginning of 2021 – according to the analyses of the major real estate consultants, the transaction volume for commercial real estate in 2020 was just under EUR 60 billion in Germany alone.
However, the relationship between commercial real estate – i.e. office, retail, logistics, hotels – and residential real estate could increasingly shift in favour of the latter. According to Union Investment’s latest Real Estate Investment Climate Study, which has been published every six months since 2008 surveying 150 real estate companies and institutional investors in Germany, France and the United Kingdom, 55 percent of the participants expect increasing inflows in residential property.
A practical example already proves it: Invesco Real Estate launched the European Living Fund in November 2020, which invests exclusively in residential real estate in Europe. William Ertz, Senior Director – Fund Management at Invesco Real Estate, justifies his optimistic outlook with “insufficient supply in main cities, longterm imbalances between housing supply and demand, and an historical high gap to government bond yields.”
Although obvious in Corona times, it is nevertheless impressive that as many as 65 percent of those surveyed expect more capital will be channelled into the healthcare sector. This means that this segment shares the leading position with logistics on the shopping list of European investors.
Commerz Real proves that healthcare does not have to mean only nursing homes. The fund provider is currently converting the Forum City Mülheim shopping centre in the city of the same name in the Ruhr region, which is owned by the open-ended real estate fund Hausinvest. By 2023, 14,500 square metres of space (out of a total of 52,000 square metres) on the first floor and in the basement will no longer be used for retail, but for health, care and therapy under the name “Forum Medikum” – including medical practices with 150 to 2,500 square metres of space. However, the pilot project is not only related to the expected growth in healthcare, but also to the difficulties in the retail asset class.
The Union Investment survey also shows that investment strategies change in times of pandemic. 58 percent of the real estate companies and investors surveyed in Germany, France and UK rely on the strategy “lower risk, lower return”. Prior to the outbreak of the pandemic, it was only 35 percent. In UK, the change is particularly pronounced: For 79 percent of the respondents, safety is now the main investment motive. Before the pandemic, it was 50 percent.
The latest Real Assets Study by Aviva Investors in November 2020 confirms that investments in real estate are not expected to decline, but rather to increase. The globally active asset manager of the British insurance company Aviva plc surveyed 1,067 decision-makers at insurance companies and pension funds from 34 countries globally with total assets under management of more than EUR 2 trillion.
49 percent of insurers and 37 percent of pension funds intend to increase their allocation to real assets investment strategies. Real estate long income is the preferred asset class of 54 percent of insurers and 45 percent of pension funds.
The Aviva Investors study also looks at trends and opportunities. 57 percent of insurers and 53 percent of pension funds surveyed feel that the long-term trend of working from home will provide the greatest opportunity for investing. This is closely followed – keyword: increased reliance on digital infrastructure – by datacentre growth (51 percent of insurers and 43 percent of pension funds) together with growth and change in the logistics sector, where 49 percent of insurers and 43 percent of pension funds see opportunities.
When asked about social infrastructure, 55 per cent of insurers and 45 per cent of pension funds in the Aviva study say it is important to include healthcare assets in portfolios. This puts healthcare assets in first place. Investments in social housing (51 percent of insurers, 42 percent of pension funds) follow in second place.
Journalist: Real Estate, City and Regional Development