For real estate investors, the long-term view is key. Paul Jayasingha, head of real assets at financial services firm Willis Towers Watson argues that the Covid-19 pandemic has accelerated pre-existing property trends, but turbulence is to be expected.
What impact has the pandemic had on the real estate market, and will certain traditional property strategies require a rethink?
Transactions have materially slowed down as properties are harder to visit, which has made price setting harder. The listed market has been pricing in further near-term declines in property valuations – particularly in the retail sector. Rent collection statistics are a particular focus at the current time, being a broad proxy for tenant risks. Non-food retail and leisure sectors have been particularly hurt here.
To a large degree, the pandemic has accelerated trends which were already in place. For example, non-food retail sectors have continued to decline and industrial/logistics, while office and residential have been relatively resilient.
Our real estate strategies have been moving away from office and retail and more towards industrial/logistics and alternative property sectors for the best part of 10 years, and this trend will likely continue. However, there will likely be near-term pressures in certain alternative property sectors such as healthcare and student accommodation.
Where are the opportunities in real estate?
There could be attractive entry points in certain alternative property sectors especially if investors are considering buying through secondary fund purchases. Listed property prices have also been relatively attractively versus the unlisted market.
Do any real estate sectors run the risk of becoming obsolete?
It is hard to say if a “sector” will become obsolete. Retail, for example, is a broad sector which includes more defensive food retail as well as more vulnerable high street retail. Real estate is attractive as the way it’s used can change. For instance, we are already seeing some retail being converted to residential use.
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