While the coronavirus crisis has battered economies and sent shockwaves through global property markets, it’s not all doom and gloom. Indeed, according to Aviva investors, COVID-19 “will not radically transform how real estate will be used in the long term; the best assets should continue to see strong demand.” That said, properties like offices and retail buildings may be best avoided owing to the huge societal changes we’ve seen in the wake of the pandemic, exacerbating pre-coronavirus trends. In this piece, we’ll look at the type of properties investors should be looking at.
One industry offering significant investment opportunities is hospitality, especially travel and tourism properties. Obviously, as a sector, hospitality has borne the brunt of the pandemic, with many businesses prevented from opening their doors entirely, or forced to hugely limit their operations. However, the potential for future profit remains massive. As noted by real investment company Cadre in October, a vaccine or medical breakthrough could see hospitality recover as travel resumes: “Predicting the timing and speed of that recovery is virtually impossible at this time, but this has not stopped opportunistic investors from preparing to acquire hospitality at distressed prices for the potential to ride the eventual recovery.” With a number of vaccines showing promising final stage trial results and set for imminent deployment, 2021 could be a great time to invest in the hospitality industry, particularly travel accommodation.
There are so many ways to get started, from enhancing an existing asset to buying into a hotel franchise. One increasingly popular route is via citizenship by investment (CBI), where you can invest in a real estate property like a hotel in return for a passport from the country in question. Take the Dominica CBI Programme, which was voted the best around for four years running, and gives investors the option to put money into a number of hospitality properties, typically by purchasing a share in them. These include The Anichi Resort & Spa, which was included in the top ten most anticipated Caribbean hotels for 2019 by Forbes, and Jungle Bay, which has previously been in both National Geographic’s and Trip Advisor’s lists of the best hotels in the Caribbean.
Another impact of the pandemic is the rise of the e-commerce sector, especially with the skyrocketing consumer preference for “free, next day delivery” as a result. With the majority of brick-and-mortar shops closed during lockdowns, the gradual shift from physical to online shopping pre-Covid accelerated by around five years thanks to the crisis. And while this is bad news for the retail real estate sector, it’s good news for those who own, or want to own, industrial properties. Companies have been forced to up investment in their distribution and logistics networks to meet consumer requirements, causing demand for industrial properties like warehouses and factories to skyrocket. Overall, industrial tenants “are scooping up available square footage at a pre-pandemic pace,” according to Marcus & Millichap, with Savills noting that industrial and logistic assets accounted for a record 20% of total real estate investment in the first half of 2020. As such, jumping on this trend seems a savvy move.
When it comes to investing in industrial property, there are a few things to bear in mind though. One is to define your investment criteria, like whether you want to find a long-term tenant for the property or utilise it yourself. Another is to make sure it’s futureproof through approaches like investing in industrial property near residential areas and critical transport nodes, and ensuring it has a good office to warehouse ratio — the less office space, the better.
The global housing market has also shown incredible resilience to the pandemic. Prices have largely held their own, with underlying demand in economic powerhouses like the US, the UK and China remaining “very strong” according to Sean Darby, global head of equity strategy at Jefferies investment bank. This comes in stark contrast to the last global recession after the 2008 financial crisis, where real house prices fell by an average of 10%. Reasons for this durability in 2020 include central banks reducing their interest rates to lower the cost of borrowing, government handout policies to preserve household incomes, and direct housing market measures like the suspension of mortgage payments. And yet again, this all spells positive news for real estate investors, with demand for housing as strong as ever.
As for which type of housing to invest in, Cadre recommends multifamily properties, since demand has consistently outpaced supply in the last decade due to lacklustre housing completion numbers, and a growing affordability gap. Specifically, they talk up Class B housing (otherwise known as workforce housing), “where the going-in cap rate is reflective of in-place rents that could potentially see significant growth as the broader economy recovers.”