The property sectors investors should set sights on post Covid-19
We look at two property sectors, one long established and one fast emerging, to discover how they are being influenced by the global Covid-19 pandemic and what the angles are for private investors.
3 minutes to read
The old...
Offices
The office sector has traditionally been a stalwart of global real estate investment. Indeed, in the last full year pre-pandemic, around 35% of total real estate investment globally was channelled into office buildings.
Although the enforced surge in working from home has led some to call time on the office, Knight Frank believes that the sector will continue to play a prominent role in global real estate portfolio allocations. Structural changes were already under way in the office occupier market before Covid-19 and the virus will only accelerate these, altering the form and function of the office of the future and patterns of investment.
Despite the pandemic, the office sector remains a popular investment choice for now, still contributing around 35% of global real estate investment volumes in 2020, based on provisional data from RCA.
To understand how the global allocation of the office sector could shift in the future, as part of our Active Capital research we used an augmented Black Litterman model to predict how private equity – a leading indicator of future market trends – allocations to the office might change.
Our research suggested that the office sector could rebalance to around 21% of private equity global holdings from 39% by the late 2020s, with an increase in logistics and non-traditional sectors such as the private rental sector.
While the proportion of private equity allocated to the office sector may reduce, pointing to a possible reduction in allocations by other investors, our analysis also suggests the overall size of the private equity sector is likely to increase, cushioning any reduction.
Despite the rebalancing, the office sector looks set to remain a significant allocation for private investors, particularly those looking for income-producing assets in locations where innovation is helping to underpin and support the real estate sector by generating wealth and attracting talent.
The new...
Life sciences
One of the key inputs into our innovation-led cities research is the degree of bio-medical funding allocated to cities. In addition to this being the subject of increased focus as a result of the pandemic, it is also one element of the growing life sciences sector, an emerging ecosystem that is ever more intertwined with technology and advanced data analytics.
Clusters range from the Oxford-Cambridge- London “Golden Triangle” in the UK to Silicon Valley and Boston in the US, as well as Tokyo in Asia. They are particularly prevalent where there are universities with strong research facilities and close links with industry that can foster monetisation and the spinning out of research.
The life sciences arena is rapidly growing and evolving. We are seeing a continued shift towards computational R&D and broader convergence of technology and life sciences.
This is where we see potential for the old and the new to come together, as the convergence of science, data, computational innovation and technology drives increased occupation of conventional office space in city centre locations, providing new opportunities for investment, particularly in highly connected, flexible and innovative workplaces.
As life sciences continues to grow, we predict the clustering tendency of the sector will amplify, particularly benefiting innovation-led cities.
Life sciences developments that cultivate a collaborative ecosystem will command a premium and existing life sciences sites are incorporating connectivity, place-making, community and purpose, wellbeing, the living lab concept and sustainability into future development plans. For the private investor, this provides a wealth of new opportunity.