The Savvy Investor Commercial Real Estate (CRE) section provides members with the latest white paper research, commentary and thought leadership articles on all aspects of the real estate and property sector at institutional level.
Commercial real estate is classified as a real asset within the alternatives asset class and includes land-based assets that have a business function e.g. business parks, offices, warehouses, hotels, medical centres, shopping centres (retail units), university halls of residence and commercial land. Returns from these assets will be derived from the building, sale, leasing and ongoing management of property. It should be noted that CRE does not include ordinary residential dwellings.
According to Preqin, the global real estate investment market is estimated to be valued at circa £900bn with circa 7000 institutional investors participating globally, 40% of which are public and private pension funds. The remaining investing participants in the sector are foundations, endowments, insurance companies, private equity firms, family offices, wealth/asset managers and banking institutions.
Commercial real estate investment is popular with pension fund managers due its combined long-term capital and income return profile. Not only are real estate income returns stable, but capital returns are also tied to broad future economic growth. Institutional investors can access CRE either in debt or equity form — this can be done so privately (private equity or debt vehicles) or via publicly listed investment vehicles such as REITs, ETFs, mutual funds or unit trusts. CRE exposure in a typical portfolio will usually be around 5-10%.
There are a wide variety of real estate investment strategies employed by investors globally with variations on those strategies. The most common types are:
- Value Added
- Fund of funds
Since CRE tends to be a long-term asset class, it is not valued and appraised daily resulting in some degree of illiquidity. As a result, asset managers need to remain mindful that although real estate asset returns confer inflation protection benefits and perceived low price volatility, execution risks remain. Institutional investors should also be aware that real estate indices and their construction and calculation may differ across geographies. This issue can manifest in a phenomenon known as ‘valuation smoothing’. For investors with a global remit, currency, tax and governance issues ought to be considered too.
Savvy Investor members will find reports and articles in this section on national and international real estate market trends including the trend towards urbanisation, the changing retail/e-commerce landscape, ESG real estate investment themes, factor analysis, demographics, historical analysis of property prices and the effects of interest rates on valuations. Members looking for a guide to institutional real estate investment will find UBS’s excellent compendium here.
The following publications feature real estate market commentary and analysis have been widely read by Savvy Investor members:
- AEW - Factor Investing in European Office Real Estate
- Nuveen - Urbanisation: A New Generation Flocking to Cities
- Aviva Investors - London: The Ultimate City of the Future
- PGIM - Core Real Estate: The Global Opportunity
- M&G - Asia Pacific Property: Innovation and the Disruption of Tech
- MSCI - Underwater assets? Real Estate Exposure to Flood Risk