Property – Feature
Those looking for an example of how economic uncertainty is gripping the world should look no further than property. Inves- tors with exposure to these markets have been offered com- pletely different outlooks.
The first is that those with allocations to bricks and mortar may need to adapt to a global economy in turmoil. This has led fore- caster Oxford Economics to revise its expectations for global property returns downward.
Another view is that property remains attractive, with bricks and mortar set to outperform other asset classes – even if returns remain just short of double digits. The two outlooks could in fact be the same, just viewed through a different lens, depending on if you are a half-glass-empty or half-glass-full person.
If we take the more positive picture as an interpretation of the asset class going forward, where in the property universe should investors opportunities?
be looking for those all-important
Doug Clark, head of research and solutions at the BT Pension Scheme (BTPS), identifies clear headwinds for the sector, not least the impact of Covid and wider secular trends – be that working-from-home or the shift to online shopping – but he also sees opportunities, which he describes as four-fold. First, higher borrowing costs have made lending money against real estate attractive. Second, offices with strong ESG and environmental credentials are in high demand from ten- ants. Third, the significant repricing in retail is leading to selective assets offering value. Fourth, demand for well located, quality residential property is strong, given affordability challenges.
Solid performer Louise Warden, head of real estate at Local Pensions Partner- ship Investments (LPPI), similarly supports the proposition that property remains attractive. And importantly, should per- form well given the inflationary environment. “We are seeing some negative impacts from the rise in rates on borrowing costs and cap rates, but those sectors where rental growth can be achieved should provide some resilience,” she says. And although Warden says no sub-sector remains immune to the economic environment, during the medium term, LPPI expects well-located, “prime logistics” assets to perform, given strong tenant demand. “We also expect less cyclical assets, such as those in the living sectors, and alternative real estate assets, such as life sciences, to provide resilience within our portfolio,” she says.
The investor appeal of property, Warden says, should also be on those with green credentials. “Assets which have strong sus- tainability credentials are attractive across all sectors, but with offices seeing a particular bifurcation in tenant demand, rents
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