At the Goodbody Investor Summit 2022 recently, we discussed the important role that global real estate can play in a mixed asset portfolio and the opportunity it offers investors to participate in long-term themes. Here we explore the long-term structural demographic drivers impacting the real assets investment landscape.
Investors tend to like property because it’s tangible and easy to understand compared to other asset classes. And while investors have traditionally invested in real estate domestically, in recent years there’s been a significant increase in the appetite for global real estate to complement domestic allocations.
With a global investable universe of $37 trillion, the global real estate market opens up access to many opportunities to participate in long-term trends; offers diversification benefits; and can generate enhanced returns for investors. In addition, the asset class seeks to deliver high income growth potential and good inflation protection.
Although there are headwinds globally, the outlook for global real estate remains firm, particularly from an inflation protection standpoint. There are a number of sectors within property markets that have strong rental growth: logistics, residential assets and healthcare real estate all have very strong supply and demand imbalances that are driving rental growth, which in turn is matching or protecting against inflationary pressures. And that inflationary protection of real estate will hold up for the long term.
Long-term structural demographic drivers
Within the global real estate markets, there are three key sectors or themes that have long-term structural demographic drivers:
Before the pandemic, ecommerce penetration rates were growing consistently globally, but Covid-19 accelerated that growth. Today, ecommerce activity rates remain on an upward trajectory – and that is a long-term trend.
In addition, there has been a reconfiguration of supply chains across the world owing to the pandemic and geopolitical tensions. Companies now want more options in terms of where their goods come from, and they want to hold more inventory closer to their end destination. This results in increased demand for well-located logistics real estate. So, this sector should continue to deliver strong rental growth – and although valuations have increased in the sector, the supply of good-quality logistics is limited.
2. Residential real estate
The living sector – or residential real estate – is considered a defensive asset class and it allows investors to access rental growth. Today, rental demand is increasing owing to record prices which makes home ownership challenging. There is also a lack of good quality affordable housing in major cities around the world.
Residential real estate spans multifamily real estate, such as apartments, single family real estate, such as single houses, as well as student accommodation and senior living. All of these segments have strong demographic drivers which is an attractive dynamic.
3. Healthcare real estate
Healthcare real estate comprises medical offices, particularly in the US, as well as life sciences and research hubs. Rising life expectancy has affected the pace of populations aging – and as populations age, they spend more money on healthcare as a proportion of their GDP. As a result, healthcare-related assets are – and will be – in demand in terms of occupier fundamentals.
This article featured in the Q4 2022 edition of Wealth Matters - our quarterly publication that presents our views on the investment landscape and explores key wealth planning themes to help build and protect wealth on behalf of individuals, families and entrepreneurs across generations.
To read or download the report in full, click here.