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Opportunities in retail and offices for clear-eyed investors

Investors looking for alternatives to resi and logistics must take a close look at currently less fashionable sectors like retail and brave the uncertainty over offices, experts agreed at Real Asset Media’s European Outlook H2 Investment Briefing, which took place online on REALX.Global recently.

Philip La Pierre, CEO Europe, La Salle IM

“You can find opportunities in every sector if you have a clear vision of all moving parts”, said Iryna Pylypchuk, director of research and market information, Inrev. “Retail’s had a negative performance for nine consecutive months but you have to unpick that, because different segments perform differently”.

Shopping centres have not done well, she said, but food and DIY stores have performed well and have that stable income component.

“As a lender we’re cautious on shopping centres because we see the risks and not the upsides”, said Assem El Alami, head of international real estate finance, Berlin Hyp. “But I believe a lot of the correction has already taken place and now consumers, who have been forced to save, are ready to go out and spend their money again”.

For core funds, retail is a value-add or even an opportunistic play to stay away from, but for others it can present some opportunities.

The pandemic has changed but not transformed the property sector, said El Alami: “In my 25 years in real estate I have never seen a revolution, so I believe the world after Covid-19 will be a little different, but not dramatically so”.

There are question marks over the office sector and there is likely to be some erosion in demand, he said, but “quality office space will remain an attractive core business in real estate”.

Assem El-Alami, Head of international real estate finance, Berlin Hyp

Opinions differ on what the post-pandemic future of the sector is likely to be.

“Remote working is an imperfect substitute”, said Marcus Cieleback, chief urban economist, Patrizia Immobilien. “People will go back to the office, but there will be multiple locations and new local hubs will be created away from city centres”.

Others believe that people will either work from home or in their company’s headquarters in order to make the most of the collaborative atmosphere.

“I don’t believe in local hubs, because the whole raison d’être of the office is to be a focal point”, said Philip La Pierre, chief executive officer – Europe, LaSalle Investment Management.. “Critical mass in the office drives creativity and corporate culture. If you disperse it, you tear it apart”.

The prospects for offices and retail are linked to the future of the city, which after the pandemic is expected to return to being bright.

I don’t believe in the doughnut effect, city centres won’t be hollowed out”, said Andy Watson, partner, Europa Capital. “Young talents want and need the healthy buzz of the city. De-urbanisation is a myth”.