Covid-19 triggers reassessment of real estate funds

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Blockages and other social distancing rules linked to Covid-19 are prompting a reassessment of real estate allocations in the European fund sector. In the commercial sector, the pandemic has amply proved that working from home is a practical option, and employers are now rethinking their long-term plans for returning staff to the office.

European investors are increasingly favoring exposure to industrial and logistics properties, two areas relatively untouched by lockdowns, according to a recent survey by research and consulting firm Cerulli Associates. They also show a growing interest in niche sectors such as health properties, which have benefited from the global attention to vaccine development.

“Managers need to keep abreast of changing tenant needs in order to create products that appeal to their customers,” says Fabrizio Zumbo, Managing Partner of Cerulli.

The real estate sector was also supported by several favorable winds. For example, the low interest rate environment has led European investors to seek alternative sources of stable but sufficient cash flow.

“There has been a greater allocation to alternative investments, including real estate, driven by a desire for improved but diversified returns,” Zumbo notes. “A fifth of private banks in Europe surveyed by Cerulli plan to increase their allocations to real estate over the next 12 to 24 months.”

Institutional investors are also continuing to diversify their real estate assets, with exposure to Asia-Pacific being particularly interesting. For example, foreign real estate now represents 13% of real estate investments by Swiss occupational pension funds, according to the Federal Statistical Office, against 7% in 2010.

While retail investors remain cautious of open-ended real estate funds in the context of the current economic cycle, sustainability is expected to dominate conversations in the real estate industry over the coming months.

According to the European Commission, physical buildings consume around 40% of energy and contribute 36% of carbon emissions in the EU. Asset managers in the region have already declared their intention to respond to growing client interest in sustainability, Cerulli said.


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