That the residential-based and logistics/industrial real estate sectors – “beds and sheds” investments – remain popular is unsurprising. What may have be less expected is that offices and retail could be making their re-entry to investors’ good books as early as 2022.
That is according to Savills Investment Management. The firm’s latest Savills IM global investor outlook survey states that “2022 could signal a turning point for offices and retail, although beds and sheds remain preferred sectors”.
The research found that nearly three quarters of institutional investors expect real estate allocations to increase in 2022
The year will not be without its challenges and geo-political and macroeconomic opportunities and risks include major elections across Europe, tensions between the US and China, global supply chain disruption and inflation, which looks set to be the biggest challenge for investors.
But despite the challenging context, the survey indicated a significant increase in appetite for real estate in 2022 with 73% of respondents expect their investment in property to increase in the coming 12 months, compared with 45% last year.
Optimism buoyed by real estate’s rapid covid recovery
The optimism is attributable to the fact that 74% of investors polled believe their investments performed well in the wake of COVID-19 compared to a ‘normal’ year. About 72% stated that performance was better than expected.
Savills IM believes that retail is unfairly maligned and wrongly considered as a single category. “Many investors have been overlooking the opportunities in food retailing, retail parks and factory outlet malls or in repositioning assets to create alternative use value,” the firm stated.
The report also stated that investors will move up the risk curve in 2022. About 63% of respondents highlighted value-add strategies as their preferred investment style while 62% are attracted by co-investment and 58% to opportunistic approaches.
More than 80% said the current focus on climate change will have an affect on their investment strategy and a demonstrable increase in the demand for green-labelled properties is expected over the coming 12 months, with 26% expecting “a significant rise”.
Meanwhile, debt-investing continues to provide attractive risk-adjusted returns with downside protection, according to Savills IM.
“Being at the lower end of the capital stack, in today’s environment of global supply shortages, rising inflation and growing property obsolescence due to climate adaptation, an allocation to real estate debt could be an attractive option for long-term investors,” said Savills IM global CIO and deputy global CEO Kiran Patel.