According to a global study by CBRE, ESG (Responsible Investing) is becoming increasingly important for investors around the world. A global survey of investor sentiment was conducted by the company in 2021. What other trends will shape investor strategies in the coming years?
The 2021 Global Investor Intentions Survey by CBRE, a leading international real estate consultancy, has shown a positive recovery from the slumps caused by the pandemic in the global commercial real estate investment markets. According to the CBRE forecast, the growth of the global volume of real estate investments by the end of 2021 may reach 15-20%.
Listed below are 9 major trends that will shape investor strategies for the next few years.
- Investment in office real estate will increase as employees return to the office.
About half of respondents from all three regions expect a slight decrease in demand for office space over the next three years. American investors are less optimistic as many believe telecommuting will become a long-term trend. The most optimistic investors are from the Asia-Pacific region: 14% of those surveyed said they expect an increase in demand for office space, driven by the growth of the service sector and restrictions on remote work by employers.
Businesses are starting to see a decline in remote productivity, which is gradually changing their attitude towards the office. As employee confidence in a safe workplace increases due to the rise in vaccination rates, we will see an increased return to the office, which will spur investment in this segment.
- Conveniences that support the health and safety of employees in buildings are important conditions for making investment decisions.
The pandemic has heightened investor attention to ensuring the health and safety of tenants returning to work in offices after the pandemic. Consequently, when evaluating investment objects, more and more attention is paid to such characteristics of buildings as energy systems and the quality of air filtration.
The new approach to asset valuation has led to multidirectional investment demand trends: continued high interest in high-quality assets in central business districts that provide long-term income streams, and decreased interest in properties with shorter cash flows of income, which require more intensive asset management.
- Investors are ready to adapt real estate to the requirements of tenants and buyers.
This trend significantly influences the assessment of risks when making decisions about granting a loan. A more reliable and faster scenario in terms of implementation here may be a credit-free purchase of ready-made solutions like houses in Turkey, for example, or other attractive regions.
- Investors enhance the attractiveness of the office by offering flexible solutions and services.
As the industry continues to rethink the future of office work and how it will affect demand, landlords and investors around the world are stepping up efforts to bring employees back to work, making office properties more attractive. Along with offering flexible office space, popular tenant retention strategies include introducing mobile apps for tenants, improving indoor air quality, and increasing a sense of community among tenants.
- Environmental, Social and Corporate Governance (ESG) significantly influences decision-making.
The application of Environmental, Social, and Corporate Governance criteria is most common among real estate funds, pension funds, and investment managers.
ESG is an increasingly important factor for fund managers to attract and place new capital from investors. Tenants are also more likely to take an interest in such assets to attract and retain talent.
- Low-performing assets will gradually be offered at significant discounts.
This will happen as more and more investors strive to collect the maximum amount of environmental, social, and corporate governance data for the acquired properties.
- Investors are willing to take risks in search of higher returns.
An investor survey from CBRE revealed interest in alternative asset classes. Investors have shown more interest in data centers, multi-temperature warehouses, and co-living in 2020 compared to 2019. CBRE’s negotiations with investors show that their drive to diversify their portfolio is fueling a growing demand for alternative assets around the world.
In the Americas, CBRE is seeing more investment in alternative real estate sectors. Student housing has proven to be more resilient than expected at the start of the pandemic, and investor interest in self-storage is also on the rise.
Across Europe, healthcare facilities and data centers are attracting global investor demand. Datacenter demand is expected to continue to grow throughout 2021, with clear winners in major cities across Europe, the Middle East, and the Africa region.
- Operating real estate attracts capital but requires complex management to be successful.
Despite the high demand for alternative assets, there are a number of risks for investors. Many of these asset classes are relatively new, so at this stage, there is not enough information compared to traditional real estate segments.
In the case of alternative assets, often involving operating expenses, investors should consider whether they want to risk potentially high returns or prefer investments in traditional real estate segments with less volatility, but with long-term leases.
As alternative asset classes mature, the trend towards these real estate segments will continue to gain momentum.
- Recovery of investments in the hardest hit asset classes.
Shopping malls will gain popularity in Europe again. An additional encouraging factor in recent months has been the increased willingness of some banks to provide financing for retail properties.
The region of Europe, the Middle East, and Africa is seeing a recovery in investment demand for hotels, but with a noticeable change in the composition of buyers. There are a large number of private investors willing to invest in long-term family hotel assets that are rarely listed for sale. Hospitality investors focus on markets where significant discounts are available.
The Asia-Pacific region is seeing a major rebound in demand for hotel assets, underpinned by investor confidence that pent-up travel demand will be released as travel restrictions ease.
Conclusion
Global trends are reflected in the strategies of investors in national markets. Of course, investment activity in the office real estate market is limited by the factor of maintaining a remote work format, while we see that investor interest in this segment is already returning.
There is also a renewed interest in trading assets from investors with experience in the sector. Despite the strengthening of the global trend for investments in alternative segments of real estate, in some regions, investment activity in these properties is at a low level due to limited supply, and often the lack of a quality product. This is the main brake on the development of the alternative real estate sector.
Compliance with ESG principles is becoming increasingly important for investors in developing countries. There is reason to believe that the focus on ESG will continue to grow and, over time, this will become normal practice for asset management.
