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it has been a while since I've done a long thread on real estate, here are a few stray reflections on the current state of the industry
a thread:
1/x
a thread:
1/x
COVID is the elephant in the room, what are the implications on RE?
mostly an acceleration of existing secular trends (adoption of e-commerce, decline of retail, office as a service, growth of resi rental) with a few notable outliers (hospitality, biosci)
2/x
mostly an acceleration of existing secular trends (adoption of e-commerce, decline of retail, office as a service, growth of resi rental) with a few notable outliers (hospitality, biosci)
2/x
witnessing the evolution of logistics has been fascinating
as demand for e-commerce accelerate, logistics assets are moving closer to population centres to meet demand volume and delivery times
in part this is driving smaller asset sizes within a supply constraint market
3/x
as demand for e-commerce accelerate, logistics assets are moving closer to population centres to meet demand volume and delivery times
in part this is driving smaller asset sizes within a supply constraint market
3/x
strong demand and limited supply in logistics has meant incredible relative growth (vs. flat or negative growth)
because rents are starting from a low base, the outperformance is even more pronounced
i.e. going from £3psf to £4psf is +30% growth, with runway for more
4/x
because rents are starting from a low base, the outperformance is even more pronounced
i.e. going from £3psf to £4psf is +30% growth, with runway for more
4/x
retail is not as straightforward
while consumer good retail continue to decline, suburban supermarket retail manages to perform and attract investment capital
difficult to say whether this will last post pandemic as e-commerce continue to change consumer behaviour
5/x
while consumer good retail continue to decline, suburban supermarket retail manages to perform and attract investment capital
difficult to say whether this will last post pandemic as e-commerce continue to change consumer behaviour
5/x
hospitality has clearly suffered through lockdown and lack of travel but will bounce back in the medium term as countries open up again
bio-science offices/labs has outperformed in the near term but is it sticky as a secular trend? outlook remains unclear
6/x
bio-science offices/labs has outperformed in the near term but is it sticky as a secular trend? outlook remains unclear
6/x
beyond specific asset class performance, the wall of capital being deployed into "real assets" in search for investment yield has bifurcated the industry
on one side, too much capital chasing too few assets and driving up prices (see 2.8% cap rate on London logistic asset)
7/x
on one side, too much capital chasing too few assets and driving up prices (see 2.8% cap rate on London logistic asset)
7/x
on the other side, institutional investors are still struggling with redemptions due to illiquidity of real estate (looking at all the open ended funds pinned by secondary retail assets)
what does this mean? the winners are going to win big and losers will be left behind
8/x
what does this mean? the winners are going to win big and losers will be left behind
8/x
the allocation shift between asset classes over the next cycle is going to be fascinating to watch
it used to be that you can't raise a diversified fund with <35% retail exposure, now you can't raise a fund with >15% retail exposure
9/x
it used to be that you can't raise a diversified fund with <35% retail exposure, now you can't raise a fund with >15% retail exposure
9/x
COVID has affected asset class performance across the sector but the redeployment of capital will continue to play out over next few years
managing capital flow, extracting NPL value, not overpaying, active asset management - it's the name of the game as this cycle begins
10/10
managing capital flow, extracting NPL value, not overpaying, active asset management - it's the name of the game as this cycle begins
10/10
