Get Real: go social!

Veteran real estate correspondent Judi Seebus was part of the Real Asset Media team in Munich recently to cover EXPO Real for our EXPO Day publication. Here she reflects on the significant shifts in the market that were signalled around the exhibition halls and in briefing sessions at the International Investors Lounge.

The free real estate ride over the past decade following an unprecedented period of quantitative easing may be gone forever, but property professionals gathered at the recent EXPO Real event in Munich showed few signs of sentimentality. Delegates who had been caught off guard last year by the abrupt end of the party appeared to have shaken off their hangovers and re-emerged this year sobered and resigned to the new normal, where money has a price and real estate carries a risk.

Repricing still has a way to go in some markets in Europe and downside risks remain, but there was nevertheless a widespread optimism that the outlook is starting to improve. Rental growth is set to return due to tight supply, fuelled by elevated construction and debt finance costs. Without exception, the industry experts who gathered together for panel discussions at the International Investors Lounge hosted by Real Asset Media, agreed that a broader cyclical buying opportunity is now emerging.

This dynamic sits alongside existing and newly emerging opportunities, particularly in the living sector, propelled by structural change such as ageing populations, demographic shifts and broadening individual preferences regarding ‘work, live and play’, according to Schroders Capital in its latest Investment Outlook published at EXPO Real. Six months ago, the investment manager favoured a balanced approach to portfolio risk, but it now believes it is time to start considering growth strategies.

Ben Sanderson, managing director real estate at Aviva Investors, believes this vintage will be a great one to buy into and the UK-based investor has been ‘on the front foot’ in deploying capital over the past year. It is now making a big play into Spanish multifamily housing where there’s a ‘huge shortage’ of accommodation to meet local demand which is currently reliant on poor quality and poorly managed stock. Global investment manager Nuveen is looking to grow its purpose-built student accommodation (PBSA) platform, especially in southern Europe, and recently announced a single-family property deal in Copenhagen as part of its ambition to extend its reach in this sector from the US to Europe.

Aviva Investors, Schroders Capital and Nuveen belong to a growing number of leading players promoting living and other related operational segments such as healthcare, student and senior housing to their investors. For the past five to eight years, residential property was viewed primarily as a bond yield gap-play, but investors are now rediscovering its inherent value as a diversifier and inflation hedge, said Dr Marcus Cieleback, chief urban economist at investment manager Patrizia.

Non-listed residential funds grow threefold

The trend is in line with the strong growth of allocations to non-listed residential funds which have grown threefold since 2015 and now total €600 billion, as Iryna Pylypchuk, director of research and market information at INREV, the European association of non-listed real estate investors, pointed out during a presentation at EXPO Real.

Lenders are also joining the fray: Munich-based bank Bayern LB recently set up a branch in Amsterdam – its fifth outside Germany after London, Paris, Milan and New York – to increase its customer base in the Netherlands. Residential is a key target.

Affordable housing in all its guises is, moreover, the property sector par excellence where investors can tick the ‘S’ in the ESG box. The ‘E’ in ESG has by now become omnipresent in any real estate discussion, whether it be about investment, development or lending, but ‘social’ is definitely on the rise as an industry buzzword and was clearly gaining traction at the latest EXPO Real.

Several large players reported they are beefing up their presence in residential with a specific focus on social impact such as AEW Europe, which recently launched a dedicated impact fund in the UK and a healthcare vehicle in France. Meanwhile half the fundraising CBRE Capital Advisors is currently working on in the UK relates to healthcare, its senior director Stephen Barr told the EXPO Day team.

Social impact is a broad concept and difficult to quantify and measure, especially since no specific regulations yet exist. But consensus is growing that the care home sector is a good testing ground for the growing number of investors keen to be seen flying the social impact flag. The EU Social Taxonomy – currently still a work in progress – will also help push companies in the right direction. Many believe it’s not just the right thing to do but will also pay dividends in the form of a ‘social premium’ similar to the green premium that can be attached to sustainable buildings, writes Nicol Dynes, Editor of Real Asset Impact, in her latest editorial.

Real asset investors may not yet be done with going green, but a rising number are now definitely also going social.