CBRE 2020: mega trends are structural shifts influencing real estate trends

CBRE says we are seeing a bifurcation of real estate investment comprising two main elements:

• On the one hand, a strong search for capital protection with large flows into core assets in highly liquid markets, often at a very low yield; and

• On the other hand, a search for growth by identifying mega-trends and structural shifts, with the aim of formulating strategies to deploy capital on these themes.

Among the mega trends that already guide real estate investment choices, ecommerce, urbanisation and the ageing population are among the best identified trends. Others include the shift from home ownership to renting or privatisation of social housing or healthcare. ‘Hotelification’ of real estate is a major structural shift in the industry, impacting income streams and investors’ business models.

CBRE cites five drivers supporting these mage trends:

  1. ‘Lower for longer’ scenario now the consensus, but spread over bonds supporting high levels of real estate investment
  2. still some yield compression for the very best assets in Europe
  3. 2020 volumes to be at least around the 2019 level in continental Europe, with a possible rebound in the UK
  4. with growth in leasing activity likely to ease, investors will need to be increasingly selective, picking markets with the strongest rental growth expectations; and
  5. beyond 2020, investors will be increasingly influenced by mega trends and structural shifts such as ‘hotelification’ and technology innovation.

In the years to come, two other secular trends will need to be embraced by investors, even though timing and impact may still be quite uncertain:

• Energy transition and sustainability: now a major societal issue and one where changes imposed by occupiers and their labour force could be imposed on real estate investors earlier than expected; and

• Technological innovation, including the possible impact of artificial intelligence on labour requirements and thus the quantity and location of real estate expected in the medium term.

The effects of these shifts could come to impact pricing, strength of occupier demand for specific assets, value gradients and the emergence of new types of asset, all of which investors will need to consider as part of a balanced portfolio strategy.

CBRE expects companies to devote more attention and rigour to ESG policies that integrate organisational, portfolio and asset level objectives. These typically include short and long-term targets around reduction in energy, water and CO2, as well as targeted improvements in health & wellbeing and biodiversity.

Jos Tromp, Head of Research, Continental Europe, explains:

 “Organisation-level policies are typically translated into fund level initiatives to manage ESG compliance through the adaptation of a portfolio level action plan over a period of 3-5 years. Portfolio owners recognise that they are not always in full control of the fulfilment of their targets but depend on the attitudes and behaviours of their occupiers, investors and other stakeholders. To accommodate this disparity, we expect a growing focus on stakeholder engagement and reporting transparency. Benchmarking with peers and disclosure of performance, for instance via GRESB, has seen a steep increase in recent years.

“Asset-level action plans can be very wide-ranging, including upgrades to building installations or envelope, smart meters and monitoring systems to drive operational reductions, targets to improve EPC ratings or Green Building certification scores; or alterations to hard and soft services, such as waste recycling, green cleaning programs or healthy catering concepts.”

CBRE adds that all investors, developers, occupiers and advisors, as well as asset, property, and facility managers all have a role to play in this transition.

james.wallace@realassetmedia.com