Is Now the Right Time to Invest in Global Real Estate?
Alternative Investments Team
As global economies re-open, commercial real estate assets worldwide are proving their resilience. This includes assets that were impacted by government shutdowns during the earlier days of the pandemic, such as retail, which is now beginning to rebound.
As a result, we believe commercial real estate continues to offer attractive opportunities to institutional investors seeking stable long-term risk-adjusted returns.
A recent paper by TD Asset Management Inc. called Is Now the Right Time to Invest in Global Real Estate? highlights the merits of gaining exposure to a global real estate allocation in the current environment.
Why Global Real Estate Remains Attractive
The paper notes two key reasons why global real assets are currently attractive.
One reason is that institutionally-owned commercial global real estate has proven to be relatively resilient during the pandemic, especially compared to other economic disruptions.
The other main reason which makes global real estate attractive right now is that economic recovery is well underway in a number of countries. This is thanks to broad containment of the virus, easing restrictions and accelerated vaccine rollouts.
However, not all countries are re-opening at the same pace. This means investors need to be strategic about their global real estate holdings by actively increasing exposure to regions that have the most attractive risk-adjusted returns, while effectively managing risk.
Accelerated Trends to Watch Out For
What makes the current economic environment unique is that while there are impacts that have altered certain real estate fundamentals, there are notable pre-pandemic trends that have accelerated to become more structural in nature.
Increased e-commerce adoption is one of these trends. It has translated into a substantial growth in tenant demand for warehousing, logistics and distribution space. Rental rates have grown at a rapid pace, while vacancy rates remain at historical lows, particularly in supply-constrained markets.
The other key trend to watch out for is population growth. Migration, which is one of the main drivers of population growth, is expected to resume as borders reopen and major cities regain their footing in attracting people due to employment opportunities, quality of life and rich amenities. Population growth is expected to serve as a favourable tailwind for all property types, especially for multi-unit residential assets in markets that see high costs of homeownership and are supply-constrained.
Yet another key trend to watch out for is a change in the valuations for retail assets. From a valuation perspective, retail assets have been the most negatively impacted compared to other property types. However, as stores re-open, there is reason to believe that pricing on many of these assets (such as enclosed shopping centres) have been disproportionately affected and that this pricing gap in retail is unlikely to be sustainable over the long term. This can present investors with the opportunity to continue holding or to acquire top-tier retail assets in more densely populated and transit-linked locations.
Given these accelerated trends, investors considering a global real estate allocation should contemplate the ability to tactically position portfolios in order to help take advantage of current market conditions while considering long-term strategic positions which are aligned with these structural trends. An actively managed real estate strategy can help investors allocate to different property types and geographies that are experiencing favourable trends.
Why TD Greystone Global Real Estate Strategy
- Investment philosophy predicated on sustainable, growing income streams over the long term
- 800+ high-quality global properties in strategic cities that can provide stable and resilient income streams, facilitated in an open-ended solution. More information can be found here
- Actively managed by region, property type and risk strategy
- Strategic overweight to cities in developed Asia Pacific countries that are seeing positive recovery trends
- Focused on defensive sectors including distribution and logistics facilities, grocery-anchored retail and multi-unit residential assets
- Environmental, Social and Governance (ESG) initiatives integrated across the portfolio and investment process
- Flexible implementation and execution through indirect and direct investments