Savills has identified and examined the social, ecological, demographic and technological trends that will decisively determine the global real estate market and could cause a reversal in investment activities as part of his global publication series “Impacts”. Savills’ Impacts publication states that real estate related to the life science sector will be one of the fastest growing investment targets.
“In times of crisis, real estate is perceived even more as a safe haven than usual. Since interest rates are at record lows, institutional investors in particular have to allocate a lot of capital across borders so that they can achieve their investment objectives, “explains Paul Tostevin, Director World Research at Savills, and adds:” All the structural changes that we identify could bring opportunities and are turning points that existed before COVID-19.”
Some key trends according to Savills :
- The trade conflict between the United States and China will continue to affect world trade for many years to come, leading to new regional patterns and, as a result, strengthening opportunities for real estate investments in markets such as India, Vietnam and Europe
- Over the past five years, over $ 2.5 trillion has been invested in the life science sector worldwide. Due to the COVID 19 pandemic, further growth in the industry is expected, especially in new markets such as Australia, India, Austria and Spain
- Low interest rates will ensure that real estate will remain in demand as an asset class in the long term, with a mismatch between “dry powder” and the lack of high-quality holdings that will keep competition high and yields low
Trade conflict USA vs. China: Other markets are coming into focus
Although the ongoing trade conflict between the United States and China is fading into the background this year due to the COVID-19 pandemic, according to Savills. It has already accelerated shifts in the global trade pattern. While large areas of land on the outskirts of the metropolises in China became free due to the relocation of production for commercial and private use, other countries were able to benefit from this development. In Vietnam, manufacturing exports to the United States rose by almost 36% in 2019, ensuring that the Southeast Asian coastal state developed into the fastest growing trading partner of the United States last year.
Savills saw similar results in India, Malaysia, Thailand and South Korea. In Ho Chi Minh City, for example, industrial rents increased by 54% by June 2019, as the city established itself as one of the most important markets for the manufacturing industry. India saw an upward trend in the light industry, especially in the automotive sector. Here, in particular, Blackstone and Brookfield were among the investors who invested large amounts of capital in the Indian real estate market. With a view beyond the Asia-Pacific region, according to Savills, Belgium, France, the Netherlands and Austria in particular have also increased their share of global trade in the past year. This also indicates increased opportunities for real estate investments in certain sectors in these countries. Here, in particular, Blackstone and Brookfield were among the investors who invested large amounts of capital in the Indian real estate market.
With a view beyond the Asia-Pacific region, according to Savills, Belgium, France, the Netherlands and Austria in particular have also increased their share of global trade in the past year. This also indicates increased opportunities for real estate investments in certain sectors in these countries. Here, in particular, Blackstone and Brookfield were among the investors who invested large amounts of capital in the Indian real estate market. With a view beyond the Asia-Pacific region, according to Savills, Belgium, France, the Netherlands and Austria in particular have also increased their share of global trade in the past year. This also indicates increased opportunities for real estate investments in certain sectors in these countries.
In the long term, the trade conflicts between the United States and China could accelerate the formation of a regional free trade block consisting of 16 Indo-Pacific countries – in addition to China including Australia, Japan, Indonesia and South Korea. The agreement could be signed later this year, creating the largest free trade area in the world. According to Savills, this will be crucial for real estate investors because such an agreement will sustainably promote prosperity and stability.
Booming life science sector
Regardless, Savills’ Impacts publication states that real estate related to the life science sector will be one of the fastest growing investment targets. Companies in this industry will gain momentum in the future and will be present in more and more regions. Savills said this segment had already invested $ 2.5 trillion in VC. In the past five years, this development has mainly been concentrated in the USA and China, but in 2019 other countries also recorded strong growth: India (+180% compared to the previous year), Spain (+ 83%), Australia (+ 79% ) and Austria (+ 453%). Although these countries are not yet on the radar of real estate investors, they offer opportunities.
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Real estate remains a sought-after investment targe
While economic, political and economic risks remain and are exacerbated by the COVID 19 pandemic, investors are still targeting the real estate asset class. However, there is a mismatch between the available capital (“dry powder”) and the supply of high-quality stocks – the competition is accordingly high and the yield level is kept low. Due to the extraordinary circumstances of 2020, many investors will in the immediate future embark on a “flight to quality”. They will try to avoid risks through diversification and strategic pricing and focus on the first-class office and logistics properties in the global market Target metropolises such as Los Angeles, New York, Paris, Sydney and Tokyo. In the long term, Savills estimates that innovative smaller cities such as Barcelona and Stockholm and emerging Chinese cities such as Shenzhen and Shanghai will also develop into interesting locations for core investors. Structural opportunities are also seen in apartment buildings and operator properties (e.g. serviced apartments and healthcare properties), as demographic trends continue to boost demand for such systems worldwide. The ongoing structural change in the retail sector, which began in the United States and the United Kingdom, but is now also expanding to the markets in mainland Europe and in the Asia-Pacific region, will offer new opportunities for buying retail properties. The focus here is particularly on objects
“The COVID-19 pandemic will have less of an impact on investment strategies than on accelerating some structural trends that have been going on for years. In addition to the increasing demand for e-commerce, this includes the fragility of the global sales networks – which are today affected by factory closings, but also affected by climate change – and the strengthening and shaping of a significant new trading block in the Asia-Pacific region. Real estate investors should therefore continue to adjust in the face of this uncertainty. The potential opportunities that arise for countries like India, Vietnam or for the innovative European cities as well as for the rapidly growing life science sector are just a few of the possibilities that could correspond to this profile, “explains Simon Hope, Head of Global Capital Markets at Savills
