Beds and sheds highlighted as sectors to watch for real estate investment in 2022

International real estate investment manager Savills Investment Management has released its latest outlook report for real estate investment markets in 2022.

While next year could be a tipping point for both office and retail investments as the world continues to recover from the COVID-19 pandemic, sectors like housing, logistics and real estate debt also seem attractive opportunities.

While a number of geopolitical and macroeconomic opportunities and risks lie ahead of us in 2022 – from major elections across Europe, US-China tensions to global supply chain disruption – inflation is likely to be the biggest challenge facing investors. More than four-fifths (82%) of respondents named inflation as the biggest threat to real estate investments in 2022, ahead of an economic downturn (68%) and possible further COVID-19 restrictions (66%).

Despite a difficult environment, the global investor survey in 2022 showed a significant increase in demand for real estate. Almost three quarters (73%) of respondents expect their investments in real estate to increase in the next 12 months, compared to 45% last year.

One of the drivers behind this renewed confidence is that 74% of investors believe their investments have fared well compared to a “normal” year after COVID-19, and 72% said it performed better than expected .

The vast majority of participants expect investment volumes to rise again in 2022. Although it is very close to the top, “beds and sheds” lead by a narrow margin. However, the participants also see growth potential in the retail and office sectors, which indicates a slow return to normalcy.

Savills IM believes that retail is wrongly defamed and mistakenly viewed as a unit. As a result, 2022 could be a turning point for the industry as many investors have overlooked opportunities in grocery retail, specialty shopping centers and factory outlet centers, or in asset repositioning to create alternative use values.

The report also noted that investor confidence is rising and they will continue to move the risk curve upward in 2022. Value-add strategies are expected to be successful over the next year, with 63% of respondents citing them as their preferred investment style. Investors also named co-investment (62%) and opportunistic (58%) as attractive investment approaches for the coming year.

Environmental, social and governance (ESG) themes are likely to continue to dominate the investment universe in 2022 as governments and companies make their way towards a climate neutral world. More than four in five respondents (82%) in the survey believed that the current focus on climate change will affect their investment strategy. The vast majority of the investors surveyed (79%) expect a demonstrable increase in demand for green label properties in the next 12 months, while 26% expect a significant increase.

Kiran Patel, Global CIO and Deputy Global CEO, Savills IM commented: “Looking ahead to next year, we believe beds and sheds will continue to be fashionable. Given the low returns on industrial and logistics real estate, investors have no choice but to think outside the box and invest in future-oriented subsectors such as urban and last-mile logistics, light industrial areas and cold stores. We expect the office market to polarize, with investors focusing heavily on first-class properties.

“In the residential sector, scalable and operationally light segments such as multi-family houses, purpose-built student residences (PBSA) and healthcare properties promise appropriate risk-adjusted returns.

“Investing in debt continues to offer attractive risk-adjusted returns with downside protection. Located at the lower end of the capital stack, in today’s environment of global supply shortages, rising inflation and increasing obsolescence of real estate due to climate change, an allocation to real estate bonds could be an attractive option for long-term investors. “