Investment Review
Real Estate
Global real estate markets remained resilient in 2019, marking a decade of uninterrupted growth. Consistent with its long-term focus, ADIA’s Real Estate Division continued to direct its activities in ways that seek to capture future growth trends.
This included increasing exposures to cities with knowledge-clusters and targeting sectors set to benefit from technology disruption such as logistics and data centres. The team also sought opportunities associated with the growing consumer classes in emerging markets, as well as in real estate debt and listed securities.
Another key focus in 2019 was on maximising value from assets whose performance diverged across and within real estate sectors and geographies.
This included refinancing activity, to take advantage of favourable interest rates, reducing financing costs and optimising capital structures.
Substantial progress was made on a number of development projects during the year across multiple markets, from residential to mixed-use assets.
As 2020 began, there were good reasons to expect positive market conditions to continue. However, the outbreak of the Covid-19 virus stalled that momentum. While the duration of the virus pandemic is unpredictable, policy stimulus, pent-up demand and a lack of major imbalances suggest an upswing is possible when the virus threat clears.
Logistics remains one of the best-positioned sectors to adapt to changing consumer behaviour as demand for e-commerce increases, a trend that was accentuated during the Covid-19 outbreak. The data centre sector may also remain strong due to the growing reliance on cloud and network services as more people work from home and shop online.
The hotel and retail sectors were the most immediately impacted in early 2020 and new office leasing activity was, on the whole, paused. Tenant behaviour is expected to shift in light of current conditions, with more looking to renew leases early on renegotiated terms or explore short-term flexible space options.
Regardless of the short-term disruptions, the Real Estate Division will maintain its focus on the long term trends shaping the real estate sector. Indeed, changing market conditions could see some of these trends accelerate, potentially leading to the emergence of different operational models based on the new ways that people choose to live and work.
Technology will continue to be one of the most significant themes for real estate investors, rapidly changing the rate at which outdated building design and functionality begins to impact returns, and driving changes in space use.
Boundaries between traditional and alternative real estate are likely to continue to blur. Partnerships between office owners, hotels and retail centres, for instance, are aiming to provide greater variety and a higher quality of user experiences to tenants, guests and shoppers, utilising under-used space in the process. Meanwhile, properties in all sub-sectors are more vulnerable to changing end-user expectations, accelerating functional obsolescence even in core city locations, providing opportunities to capture demand for urban renewal.
Acute supply shortages in many locations will drive demand in the residential sector, which will offer opportunities across a broad range of sub-sectors and geographies.
The use of data science is growing rapidly in the real estate industry and offers a competitive edge to those that are able to harness big data to make better-informed decisions. The Real Estate Division has been investing in its data analytics capabilities to analyse both structured and unstructured data to help drive strategic decisions and predict market trends.
The Division’s focus on emerging markets will continue in the coming years, particularly China, India and Latin America. The growing consumer class in these markets, combined with a scarcity of quality space across sub-sectors, is likely to provide a range of attractive opportunities.
Meanwhile, knowledge-clusters are expected to retain their relative strength, as highly-skilled workers are drawn to supply-constrained and desirable locations such as Silicon Valley, the Greater Bay Area in China, Shanghai, Berlin and many others.