A review: Delio’s real estate investments roundtable
The latest in Delio’s series of digital roundtable events saw us focus on the highly topical subject of real estate investments. With representatives from Australia, Japan, Europe, the United Arab Emirates and the UK, this discussion had a truly global feel and stimulated interesting conversations around the current trends affecting the real estate community both at a regional and global level.
During the hour-long session, our panel shared their thoughts on a wide variety of topics; the impact of Covid, Brexit and changes in the risk appetite of investors were all discussed, plus much more in between.
The impact of Brexit on UK real estate
We kicked off the discussion by considering the impact of Brexit on the UK real estate investments scene, from both a domestic and international viewpoint. One of our UK-based panellists explained that they are currently raising a fund denominated in GBP; they explained that their firm is having to manage an increased volume of queries from international investors about whether now is the best time to be investing in GBP-backed assets given the current economic climate.
Participants from other parts of the world reinforced this position, with one panellist saying that investors based in Australia were taking a highly cautious approach to real estate investments in the UK at the moment. This was predominantly a result of the ongoing volatility caused by Brexit, coupled with concerns over how the economy will recover from the Covid-19 pandemic. In practical terms, they explained that this had meant that many investors had chosen to overlook a UK real estate opportunity despite it being a ‘good match that presented phenomenal yields’, primarily due to concerns over risk.
Interestingly, another real estate specialist commented that they had seen an increased flow of investment into Australian opportunities from the UK in recent months. They went on to point out that the UK is currently the second-largest investor in Australia (behind Singapore) and that he had seen large sums flowing into the market over recent months. While 2020 had seen a significant retraction in the amount of private wealth allocated to Australian real estate compared to 2019, this figure had bounced back significantly in the first half of 2021.
A shift in focus amongst real estate assets
Taking a more global perspective to real estate investments, one of the panellists predicted that we will shortly be entering what they described as a ‘post-war’ economic situation as the world bounces back from the Covid-19 pandemic; their view was that private wealth allocation into real estate assets will boom later in 2021 and into 2022. They explained that this view is based on the fact that they have already begun to see significant growth in certain asset classes such as offices, industrial units and logistical centres, particularly for e-commerce businesses that have grown rapidly in the last 18 months as shopping habits have moved further online.
The group went on to discuss how many of the more mature real estate markets, such as Australia and the UK, are beginning to see more private wealth being allocated to retirement housing and healthcare projects. It was agreed that as these countries start to tackle the challenges created by their ageing populations, there are significant investment opportunities offered by their need to build specialist residential housing, care homes and health centres.
The opportunities offered by the ‘buy to rent’ market were also discussed; one panellist said that while this model was very mature in the US, the UK was now beginning to see significant growth and they were expecting to see Australia follow suit over the coming years. Another panellist commented that the ‘professional landlord’ model in the UK was ripe for growth; while 45% of US renters and 35% of German renters use professional landlords, in the UK this figure drops to just 1%. Many participants on the call agreed that this offered a significant opportunity for real estate investors in the UK.
The important role of strategic partners
With many participants still limited by international travel restrictions, the importance of working with trusted partners across the world was seen as crucial in their ability to identify and close out investment opportunities on a global scale. A panellist who is based in the Middle East but invests in European real estate opportunities explained that it’s vital for them to form partnerships with individuals at a regional level in order to utilise their local market expertise and identify potential opportunities. However, they went on to say that the risk appetite required to unlock many of these opportunities often needs to be relatively high, which means they are of interest to only a small audience of investors.
One member of the panel is based in Tokyo and explained that the Japanese real estate market is currently facing real difficulties as a result of Covid restrictions. They said that very few, if any, overseas investors had been able to enter the country in recent months, which meant that international real estate investments had almost ground to a halt. While some real estate transactions are taking place, the vast majority involve domestic investors buying and selling assets. However, they did predict to see some inflow of capital from outside of Japan later this year as investors take a fresh look at the country’s real estate market which they argued had ‘traditionally been underrated’.
Real estate in a post-Covid world
While the world begins to partially emerge from the pandemic, the panel was understandably keen to share their views on what long-term impact the events of the last 18 months were likely to have on the large metropolitan areas that have traditionally been so important to the real estate sector.
With many businesses formally adopting working from home strategies, the group discussed what repercussions this would have on office spaces and the wider infrastructure of city centre businesses such as catering and retail. One member of the panel felt that investors were now placing greater focus than ever before on diversifying risk across their real estate portfolio and that the criteria that they had based their investment decisions on over the last decade or so were now ‘up in the air’. They went on to say that while investors were still actively exploring opportunities in the sector, they were proceeding with the highest degree of caution than he had seen since the financial crisis of 2008.
This view was echoed by another panellist who said that real estate firms were having to adapt their strategies very quickly in response to the unique circumstances created by the pandemic. They argued that with many high profile tenants downsizing their office space requirements in prime locations, there is likely to be a significant amount of real estate flooding the market as leases naturally reach a renewal stage over the next few years. As a result, firms are having to employ creative approaches to market these spaces with a view to protecting their short-term rental income as much as possible, while also reviewing their longer-term strategies for large, multi-use developments.
In conclusion, our discussion encapsulated many of the challenges and opportunities facing real estate investors on a global scale. On the one hand, city centre offices and retail spaces appear to have suffered the most as the world adapts rapidly to remote working; while on the other, the huge growth in e-commerce means that the demand for industrial warehouses and logistics centres is likely to accelerate rapidly in coming years. However, the view that real estate investments still have a vitally important role to play for both private and institutional investors remains a consistent theme across the world.
If you would like to attend the next Delio roundtable on real estate investing, you can register your interest by emailing email@example.com or contact us directly.