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Growing polarisation as resi and logistics are in demand

The crisis has lifted some sectors while accelerating the decline of others, delegates heard at Real Asset Media’s European Outlook H2 Investment Briefing, which took place online on REALX.Global this week.

“In the last 18 months we’ve seen a growing polarisation around sectors,” said Jessica Hardman, head of European real estate portfolio management, DWS. “Residential and logistics have done well, while there is a wait-and-see attitude on offices and retail’s pre-existing problems have deepened.”

Jessica Hardman, head of European real estate portfolio management, DWS

In the residential and logistics sectors, strong demand has led to a shortage of supply, a strengthening of prices and diminishing returns.

“We’re fans of logistics but current prices are crazy and it’s difficult to make money,” said Assem El Alami, head of international real estate finance, Berlin Hyp.

“We’ve tilted our stock selection towards resi and logistics,” said Andy Watson, partner, Europa Capital. “The problem for fund managers is that logistics is small and granular, it’s quite difficult to build mass.”

As the logistics sector grows “it will develop niches and become a more multi-faceted business”, said Marcus Cieleback, chief urban economist, Patrizia Immobilien.

“Sheds & beds have been the centre of attention for us as well,” said Philip La Pierre, chief executive officer – Europe, LaSalle Investment Management. “We’ve deployed a lot of capital in the last months, but returns are not satisfactory. All that continuing pricing pressure means you need to think of alternatives.”

Residential offers many alternatives but returns can be elusive

Residential, being such a broad church, offers many alternatives from student housing to senior accommodation. Demand is high and prospects are bright but, as in the case of logistics, returns can be elusive.

“Resi will be the best performer over the next few years, but you need coverage across Europe and in both A and B cities in order to get the returns,” said Hardman.

Diversification across countries as well as city types is a must, said La Pierre: “In order to gain access to returns, you have to go to 2nd and 3rd tier cities as well as the capitals.”

Both La Salle and Europa Capital have successfully invested in resi in Berlin and Copenhagen recently.

“Resi is my pick as a winning sector,” said Watson. “The performance of our PRS assets in Copenhagen has been spectacular.”

Resi is also at the forefront of innovation and changes brought about by proptech that are transforming the sector.

“New technology will add to performance and reduce costs,” said Iryna Pylypchuk, director of research and market information, Inrev. “One big shift we see is a user-centric strategy, from real estate as product to product with a service. You can enhance rent by offering services and the first-mover advantage is substantial.”

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