Three trends driving real estate investments in a post-pandemic economy – ShareCafe
However, new trends have also emerged, particularly the decentralization of work. As the pandemic has demonstrated the viability of remote working, we are seeing a shift from dense urban to more urban and suburban locations. It is part of a new paradigm of living, working and playing on site.
A story of two cities: edge against center
We believe that the office area will experience a division between severely disturbed office towers with a skyward rise in favor of modern outskirts and suburban office buildings of class “A”.
Service organizations are well suited to adopting remote working practices, and this begs the question of the need for high-rise office space, which tends to be expensive, inflexible, congested and inefficient. In contrast, high-quality, low-rise suburban office buildings often have larger, more flexible floor slabs, and offer more amenities and more room to break out to encourage collaboration. In many cases, the rent difference to high-rise CBD offices is up to 50%.
As a result, we believe that these traditional CBD buildings will be badly damaged and have higher natural vacancy rates and falling market rents and valuations. At the same time, the demand in low-rise, city and suburban offices will increase.
So far, the division between tenants in the city center and on the outskirts of the city was due to industries. Traditional professional services such as finance, insurance, accounting, and law use “old world” labor practices. While the burgeoning technology, media and IT sectors have defined the trends of the “new life” of a more decentralized workplace. However, we believe that there will be greater convergence between the new and old sectors in the future.
E-tailers provide tailwind
Another trend we have seen is that physical commerce is under pressure, but e-commerce is creating supportive conditions for the logistics sector.
An unprecedented level of price transparency has changed the game for retailers who can only compete on price and availability. Wholesalers, omni-channel retailers, and e-tailers are investing huge amounts of money in their supply chains, and the total inflow of capital is immense.
The key for them is efficient inventory management: who can get the goods from the manufacturer or wholesaler to the customer’s door or to the front of the shop the fastest? This requires very modern logistical warehousing. New facilities in countries like Japan are expediently built up to five levels high, with high-tech robot systems for transporting goods, which makes modern logistics centers very valuable.
Apartment rents: reinvented
Another strong theme in the current market is rental of residential property, including apartments and single family homes, as well as prefabricated homes.
The attractiveness of rental housing was highlighted during the pandemic. As the economy expands, these assets experience growing cash flow as household finances improve and rent affordability increases. They continue to provide stable cash flows during the economic slowdown as the desire and ability to finance home ownership deteriorates.
However, regardless of short-term conditions, we see the decline in home ownership as a long-term trend.
Affordability is a driver, but there are also cultural changes. Younger generations do not always value home ownership like earlier generations and are attracted to purpose-built apartments with high equipment. The affordability and supply can be very compelling when compared to home ownership.
A positive outlook for real estate
Overall, cash flows for REITs have remained relatively stable during the pandemic, and the long-term outlook for the sector is positive.
All rental income for logistics centers, office buildings, apartments and single-family houses, data centers, self-storage centers and health care assets such as hospitals and medical office buildings are well over + 90% this year. The notable exception is shopping malls, which have been severely affected.
Real estate will, in the main, be a major beneficiary of the anticipated redistribution of capital in global economies, and this will create significant opportunities that are likely to exceed decades.