Real Estate

The global real estate market continued to experience volatility in 2022, as inflationary pressures and rising interest rates dampened sentiment and valuations. On the positive side, demand grew for private credit while the hospitality sector continued its recovery.

For real estate investors, the year began on a strong note; offices and retail outlets re-opened, hotel occupancy increased as global travel resumed, and strong e-commerce sales spurred demand for logistics assets. By spring, central banks began to raise interest rates, which led to pressure on property values and a decline in tenant sentiment, resulting in increased risk aversion.

Amidst these challenges, the Real Estate Department (RED) remained disciplined and focused on assets with strong fundamentals, while being nimble across the capital stack to capture opportunities. It invested actively in high-conviction strategies and applied its flexible, access-agnostic investment strategy to adapt to the changing market and economic paradigm.

With the help of its diverse team and global partner relationships, RED was able to exploit dislocations and access high risk-adjusted return opportunities with strong long-term prospects. In particular, the Department increased its exposure to data centres in China, India and the wider Asia-Pacific. It also sought to capitalise on mispricing in public securities globally, where long-term operational fundamentals and secular trends remain intact.

Meanwhile, RED continued to support investments in sectors with robust operating fundamentals, such as residential rentals, where rent growth remained strong despite higher funding and development costs. Through its existing platforms, the RED team was able to invest selectively in growth sectors at attractive points in the cycle.

Another key part of RED's activities was to support opportunistic funds or platforms with the ability to swiftly adapt their strategies to a more volatile, unpredictable environment. To this end, it forged new partnerships with seasoned management teams in the hospitality space, among others. It also increased exposure to credit platforms in the U.S., Europe and Australia as banks retreated and higher financing costs put pressure on capital structures.

In logistics, RED remains committed to its existing urban logistics exposure in the U.S., Europe, Australia and China, and to exploring further selective investments. It expects the sector to perform well in coming years, fuelled by urbanisation and e-commerce growth, and increased demand for industrial space that is in finite supply. In addition, logistics remains operationally resilient to economic cycles due to the potential for value enhancement through upgrading and repositioning existing properties.

Looking ahead, RED is working closely with ADIA's Quantitative Research & Development team to harness the power of data and utilise cutting-edge quantitative methodologies for portfolio strategy, optimisation and risk management.

The Department is also continuing to build out its team with high-quality talent across specialisations. In 2022, it appointed Drew Goldman, a seasoned professional with over 30 years of industry experience, as its Global Head of Real Estate. While ensuring it has the resources it needs and filling open positions, RED remains committed to supporting and developing its current team and fostering a truly dynamic working culture with a global perspective.

In the year ahead, RED will continue to focus on its high conviction themes while remaining adaptable and ready to adjust its strategy to navigate the changing market conditions. It will also draw on its flexible approach, global reach and strong internal capabilities to direct investment activities towards areas of future growth.