The world in which we live and work is changing rapidly and it’s sometimes difficult to spot the trends that will shape the coming years. We have been tracking these trends and considering the potential implications for the real estate industry. Here’s what we’ll be watching in 2015:
- Globalization: Driven by the need to diversify beyond domestic markets, global capital flows will continue to build. This will bring even greater understanding of RE markets as a whole. Our prediction is that the result will be an expanded RE universe with investors on the lookout for strong risk-adjusted returns.
- Shift to “real assets”: Uncertainty, heightened volatility and slower growth has led to investors allocating a larger piece of the pie to “real assets”. This term comprises a variety of tangible investments that give investors options and are widely thought to provide a stable source of income in weak markets and access to capital appreciation in strengthening markets.
- Increasing risk appetite: The so-called “flight-to-core” has led to significant competition for prime assets in sought-after locations. As they are currently increasing allocations to real estate, investors are being forced – through competition – and encouraged – by improving economic sentiment – to diversify. We expect to see new geographical locations, asset classes and asset segments gain in popularity.
- Asset class broadens: Property types which would have been considered ‘specialised’ just a short time ago are now becoming mainstream. As investors increasingly seek long-term income flows, demand for assets with operating elements – such as hotels, student accommodation and so on – are receiving increasing interest, which in turn is leading to yield compression. All signs point to this continuing.
- Securitization: The depth and breadth of listed REITs/companies is increasing, with more conservative balance sheets post-2009. The shift from Defined Benefit (DB) to Defined Contribution (DC) is also supporting this trend, along with the emergence of DC-compatible private equity vehicles. Will this continue into 2015? We certainly believe so.
- Debt: Ongoing bank deleveraging is making space for new entrants to debt markets. Watch this space as we believe this is the sign of things to come.
These trends are not only to be watched and accepted, there are real developments that will call for action if you are to stand out. If you anticipate those trends, real opportunities can emerge for your business.