Although the economic, political and cyclical risks will remain and were increased with the recent pandemic, investors will continue betting on real estate, with a lack of correspondence between the high liquidity and low asset availability which maintains competitiveness high and revenues low. Savills claims that investors will face the risks according to diversification and price, even if the exceptional circumstances of 2020 caused a «shift towards quality» of office and logistics prime assets in the main cities around the world such as Paris, Los Angeles, New York, Sydney and Tokyo, on the short-term.
Nevertheless, on the long-term, smaller and innovative cities such as Barcelona and Stockholm, and the developing Chinese cities, such as Shenzhen and Shanghai, will become defensive investment locations for core investors, as well as structural opportunities in terms of housing and alternative rental properties, since the demographic trends all over the world will keep boosting demand for that type of assets.
According to the international real estate consultant, the structural changes within retail, which started in the United States and the United Kingdom and were beginning to transfer to other markets within the Asia-Pacific region, offer opportunities to buy assets in specific regions where rents have already dropped or where the low prices allow new owners to add value.
Simon Hope, head of global capital markets at Savills, stated: «The impact of the Covid-19 pandemic on the investors’ strategies is much lower than the role it played on the acceleration of structural changes which have been taking place for years. Amongst them is the e-commerce demand increase, the vulnerability of the world’s distribution chains – due to the shutdown of factories, but increasingly more due to climate change – and the strengthening of a new and significant commercial trade block in Asia and Australia. Real estate investors need to keep adapting to this uncertainty. In order to be successful, a careful selection of assets, the correct diversification and the proper setting of prices in terms of long-term risk will be necessary. The probable opportunities that stand out in new regions, such as India, Vietnam and the innovative European cities and the fast-growing segments, such as biotech, are only a few of the recommended strategies».
Paul Tostevin, director at World Research and co-responsible for the Impacts program at Savills, added: «In times of adversity, real estate is perceived as a safe haven. With interest rates at historic lows, there is much capital with which to invest, especially from institutional investors who must look abroad for their investments».
The structural changes –added Paul Tostevin—identified in Impacts, offer opportunities: capitalising on the e-commerce disruption by readapting retail sales, taking advantage of the advances in science and knowledge-driven economy through the fast-growing biotech segment and the geopolitical changes brought on by the Commercial War between the United States and China. These tipping points preceded Covid-19, but the pandemic accelerated some of these trends which were already growing within the real estate sector.