Real Estate Investment Managers seem more bullish on Offices than investors. Do their stats add up? Or does the segment more time to find it's equilibrium.
Demographics and U.S. CREOffice Real Estate
The stable historical relationship between office demand and employment growth has been challenged by hybrid working, with some estimates pointing to a 4% resultant increase in office vacancy rates. But investors attention has now turned to a different relationship. The impact of demographics on U.S. commercial real estate. The numbers are striking.
The cross-generational characteristics of the labour market is changing. Whilst the millennials over filled the work force after the Global Financial Crisis, the baby boomers were also still hard at work. Roll forward to today, we have a situation where baby boomer retirement is not being compensated by enough Generation Z labour market entrants. Added to which is a declining population not being compensated by immigration growth in the U.S., making for even tighter future labour markets.
And as the labour market tightens, employers will have to lean in to the desires of the workers that remain. Both in terms of the city in which they locate their offices, and the attractiveness of the working environment to Generation Z employees.
Identifying opportunities in U.S. Commercial Real Estate in the future, may be less about employment growth, and more about identifying assets that create an attractive working environment for Generation Z employees.
US commercial real estate (CRE) investors are well-versed in the importance of economic growth to property investment performance. Focus on the Covid-19 recession, policies to truncate it, and the path of recovery have dominated the attention of analysts for more than two years. Macroeconomic factors continue to dominate attention now, well into 2022, as inflation in the Covid-recession’s aftermath complicated by Russia’s invasion into Ukraine have taken the spotlight. All eyes are now on the prospects for the US Federal Reserve (Fed) to accomplish a soft landing. Looking further ahead, US CRE will confront another challenge embodied in weakening demographics. In the paragraphs below, we identify the components of weakening demographics measured nationally and highlight differences across US metro areas. The differences illustrate the importance of careful metro market selection to counter demographic headwinds in the years ahead.
Which Asia Pacific Real Estate Markets Now?Asia Pacific
Asia Pacific Real Estate markets have experienced strong 1H22 fund raising, as easing supply chains have counterbalanced central bank tightening. But the story is not universal and may be about to change.
Whilst Singapore and Seoul have shown strong investment activity, China and Japan have not. Looking at a sector level, repricing is happening in the 2020/2021 record breaking industrials and logistics segments. And with slower growth expected, investment volumes may trend back down towards 2018 levels.
Based on search queries inside RFPnetworks, it appears that investors are focusing on researching Hong Kong, Singapore, and Australia deeper. Trying to identify the sectors that are able to weather a global recession.
What To Expect from Real Asset Debt?Alternative Credit
One of the attractions of Real Estate and Infrastructure Debt is the illiquidity premium that can be earned. But how does that basis point boost perform in a down turn?
Whilst private debt has gained popularity with institutional investors as an alternative to bonds in a rising rate environment, many are new to the asset class. With traditional bond markets struggling year to date, investors are now researching the ability of illiquid assets to outperform in a recession. And critically, which specific market segments will maximise the premium differential as and when public markets rebound.
The Price of TimberFarmland
Timberland investors are used to predictable stable cashflows. But 2022 has introduced significant volatility into the asset class. Not surprisingly, driving this volatility on the supply side are heightened energy, fertiliser and transport costs. And as a recession takes hold, softening demand may further impact cash returns.
Nevertheless, timberland remains high on the agenda with specific institutional investors. The shift in portfolios towards sustainable products, and the long term structural trends of renewable energy and net zero portfolios are keeping the traffic on timber research papers inside RFPnetworks high.
Is The Green Office Premium Sustainable?Office Real Estate
The focus on Green Rating Certifications by office real estate investors has driven the EU building stock to new levels of efficiency. Which in turn has shown a quantifiable premium for rent and asset valuations. But with approximately three quarter of EU Buildings now rated as efficient, the question is whether this Green Premium will continue to be a differentiating factor.
The answer may depend on rating concentration by location and building value.
Over the last decade Purpose Built Student Housing has gained popularity across the institutional investor world. Whether interest in this segment of the real estate market will continue may depend on several factors.
What are the Latest Opportunities For Impact Investors in Real EstateESG
In our real estate feed there were several search queries on affordable housing, US Low-Income Housing Tax Credits, 'Change-0f-Use' projects, and UK Social Housing. Research and case studies on the social impact of residential real estate is getting the most clicked. Perhaps because the evidence of their inflation protection qualities seem to be inconclusive - it depends who is providing the inputs (a REIT manager or a non-REIT manager). And the answer may be a function of the ability to raise rents for the underlying assets.
Affordable housing is attracting investors.
Investments in US Low-Income Housing Tax Credits (LIHTC) are an excellent example of impact investing. Impact investing seeks to create positive social or environmental benefits in addition to financial returns. To call an investment an “impact investment”, it is necessary to have an agreed upon understanding of what benefits are generated in addition to financial returns, as well as a mechanism for measuring those positive impacts.
In this paper we explain the basic workings of the program, investigate some of the positive effects it has on lower-income residents and society, and discuss ways these impacts could be quantified.
Do REITs help protect portfolios in a rising rate and high inflation environment?U.S. REITs
A common theme across all our research feeds currently is the inflation protection qualities of specific asset classes. Or put another way, how will certain assets perform in a rising rate environment. Research on REITs is therefore getting lots of traffic. Perhaps because the evidence of their inflation protection qualities seem to be inconclusive - it depends who is providing the inputs (a REIT manager or a non-REIT manager). And the answer may be a function of the ability to raise rents for the underlying assets.
The answer depends on who you talk to.
It has taken 2 years for restaurant and flight activity in the U.S. to return to their pre-pandemic levels. The same cannot be said of offices.