The insatiable rise of urbanisation
The stage for future commercial real estate investment is undoubtedly urban. The momentum behind urban place creation is as ubiquitous as it is unstoppable.
This will create tremendous opportunities for investors, in three ways. First, the changing shape of the city and the creation of new urban quarters through regeneration will generate investment opportunities. Second, as business models adapt to the needs of urban consumers new types of real estate product will emerge.
Most notable here is the inevitable rise of urban logistics in direct response to the growth of e-commerce. Third, the changing shape of cities presents opportunities for adding value – obsolescent office stock being converted to hotel, residential or specialist uses or being upgraded. Urban infrastructure projects present a huge opportunity too.
India emerges from the shadows
BRIC economies have been on the investor’s radar since Jim O’Neil first coined the acronym in 2001. Although these economies have been buffeted in recent years and still present transparency challenges for investors, we see strong opportunity, particularly in India, over the next decade.
The election of the Modi government has ushered in a pro-business, pro-technology agenda that is starting to play out in the real estate markets.
The incredible progress of the technology sector in India has served as a catalyst for the emergence of highgrade commercial real estate in leading Indian cities, such as Mumbai, Delhi and Bengaluru, and has positioned these markets as credible investment destinations from a global standpoint.
Experiential real estate
Successful investors must be attuned to how the occupier will utilise the real estate asset they are renting or buying. It is the key to income generation. Yet the wants and needs of the occupier, and the strategic significance placed upon real estate, is transforming.
No longer can the office be viewed simply as a container for staff. Similarly, the modern retail unit is today about much more than the throughput in the cash register. Real estate is increasingly about the user experience. Best performing retail assets will support retailers indirectly in driving increased sales – being one, albeit important, part of an omni-channel presence.
Office buildings will be central to driving occupier efficiency, productivity and talent retention. Understanding these changing dynamics will be pivotal in stock selection and investment return.
Innovative access to real estate product
Although the wave of innovative financial instruments crashed following the global financial crisis, as illustrated by the demise of real estate derivatives, new innovative products will emerge over the short to mid-term that allow the private investor to access commercial real estate. We live in an era of crowd-sourcing and crowd-funding and these collaborative models will develop in commercial real estate.
We will see greater tie-ups between private wealth and real estate expertise in joint venture structures and anticipate syndicated approaches that utilise strata title in office buildings. This will enable the wealthy to invest in lot sizes that would have otherwise been difficult to access.
Indirect real estate products also continue to emerge, especially in emerging markets such as India and China where REITs will become established investment vehicles.
Specialist sectors move further into the vanguard
Specialist commercial real estate sectors such as student accommodation, automotive, healthcare and hotels have become an established favourite of UHNWI investors over the past decade. But wider socio-economic and demographic dynamics mean that the opportunity has been barely exploited.
For example, demographic upheaval caused by an ageing population will serve to create future market opportunity in the healthcare sector.
While such opportunities are currently focused on Western markets, the absence of state systems of welfare, the rising ability to pay for private provision, and the sheer weight of demography, will open up the emerging markets too.
No longer can the office be viewed simply as a container for staff. Similarly, the modern retail unit is about much more than the throughput in the cash register