Consultant Savills predicts that real estate investor trends will continue in the post-Covid-19 scenario and says buyers will continue to circumvent risks through diversification and prices.
Savills analyzed the key trends established to determine future global real estate investment activity in a series of articles and interviews released on May 18, 2020 under the Impacts research program. Savills International has studied the various critical social, environmental, demographic and technological aspects facing the global real estate sector more immediately.
The conclusions were:
According to Savills, while this year's current trade conflict between the U.S. and China is overshadowed by the impact of the Covid-19 pandemic, it has already accelerated changes in global trade patterns. As Chinese production dislocated, freeing up large tracts of land for commercial and residential use on the outskirts of major cities, other countries benefited. Among them is Vietnam, where exports of products to the U.S. increased nearly 36 percent in 2019, making it the fastest-growing U.S. trading partner last year, as did India, Malaysia, Thailand and South Korea, according to the consultant. Industrial leases in Ho Chi Minh City districts, for example, increased 54% by June 2019, making it an important production market. India has also seen an increase in the occupation of the light industry, particularly in the automotive sector, with Blackstone and Brookfield among several investors who have already invested large amounts of capital in their real estate market. In addition to Asia Pacific, Savills says other countries, mainly Austria, Belgium, France and the Netherlands, also increased their trade share last year, signaling possible strengthening opportunities for real estate investors in those locations in certain sectors.
In the long run, trade difficulties with the US may accelerate the formation of a regional free trade bloc; a Comprehensive Regional Economic Partnership consisting of 16 Indo-Pacific countries, including China, Australia, Japan, Indonesia and South Korea, which may well be signed this year, thus creating the world's largest free trade area. Savills believes this will increase wealth and stability, crucial elements for real estate investors.
Real estate sector associated with the life sciences sector will be one of the fastest growing targets for investments
Separately at Impacts, Savills points out that the real estate sector associated with the life sciences sector will be one of the fastest growing targets for investments, as companies in the sector seem poised to accelerate growth and become prevalent in more geographies. Savills notes that while the $2.5 trillion in venture capital investments (one of the main factors in future growth of the life sciences business and therefore meaning higher demand for real estate) have been focused on the U.S. and China over the past five years, countries that experienced particularly strong growth in 2019 include India (+ 180% aa) , Spain (+ 83% aa), Australia (+ 79% aa) and Austria (+ 453% aa *). These countries may not be on the radar of real estate investors yet for the life sciences sector, according to Savills, but they may potentially offer the opportunity to build a portfolio of investments around innovation clusters, including a diversity of real estate assets, from startup incubators, research and development facilities and even office buildings.
Simon Hope, Global Capital Markets Director at Savills, comments: "The impact of the Covid-19 pandemic on investor strategies is much less than the role it is playing in accelerating some underlying structural trends that have been developing for years. This includes growing demand for e-commerce, the fragility of global distribution networks - affected today by factory closures but increasingly by climate change - and the strengthening of a major new trading bloc in Asia and Australasia. Real estate investors need to continue to adapt to this uncertainty. Careful asset selection, diversification and correct long-term risk pricing will characterize those that succeed. The potential opportunities highlighted by Impacts in new geographies, such as India, Vietnam, innovative European cities and fast-growing sectors such as life sciences, are just some of the potential moves that can fit that profile."
Paul Tostevin, Savills World Research Director and co-leader of the Impacts programme, adds: "In times of adversity, the real estate sector is perceived as a safe haven. With interest rates at minimum levels, there is still a lot of capital to be allocated, especially from institutional investors who need to look abroad to meet their allocations. The structural changes identified by Impacts bring opportunities: capitalizing on the disruption of e-commerce through retail redirection, opportunities for scientific advances and knowledge economics through a rapidly growing life sciences sector, and even opportunities under geopolitical changes through geographic changes arising from the U.S./China trade war. These are the previous critical points for Covid-19, but the recent pandemic means that some of these changes in the real estate sector may now have an extra boost behind them."