Perspectives from Boyden's Global Financial Services Experts on Banking, FinTech, Real Estate, Insurance, Wealth & Asset Management
A roundtable discussion led by Boyden's Global Financial Services Practice Co-Leaders, Carlos Dafauce and Joost Goudsmit.
Carlos Dafauce: From remote work to new social distancing restrictions, there is significant uncertainty within real estate. How is the segment adjusting in the short term? What can we expect to see in the long term?
Derrick Chow (Canada): From a macro perspective, the real estate asset class remains an attractive investment class for well-capitalized owners given this low interest rate environment but allocation within the various asset classes has likely shifted. Retail has certainly been most affected but COVID-19 has only sped up a trend that was already occurring in recent years – a general diversification away from this asset class and redevelopment opportunities to more mix-used (retail/residential/office) type asset type. The clear winner here is the industrial asset class. We are seeing a renewed focus on industrial asset class given the focus now on e-commerce, distribution and logistics. Commercial demand has shifted slightly but I think most are still bullish on the long-term prospects in this area – but with a focus on different floorplates and configurations. The office environment has likely been forever changed with more openness toward remote work arrangements but that doesn’t mean office demand will go away. From a residential standpoint, there is some evidence to support that sale prices have remained stable if not increased during COVID-19. Developers and builders will gain from this but you are seeing pressure on rent prices though which will affect owners.
In summary, while there are short-term challenges affecting the industry, we are seeing real estate organizations adapt and adjust. Organizations that are well-capitalized are taking a long term perspective and taking this opportunity to be opportunistic in the market. The demand for talent remains high with an enhanced focus on diversity and executives who can be adaptable, innovative, and creative in a sector that is not traditionally known for being progressive.
Richard Plaistowe (U.K.): With global transaction volumes in the first half of the year down by 30%, it has absolutely been a challenging time for the Real Estate sector. There are certain areas of the sector that are holding out better than others. As Derrick mentioned, Logistics is a key area that is booming as on-line purchasing has rocketed and the requirement for space from the likes of Amazon and other online retailers is growing. We will continue to see the growth of large-scale distribution and logistics centres close to our main transport links.
The retail sector has seen the decline that was already occurring speed up. As it continues to fall, there will be plenty of unoccupied space on High Streets and Retail Parks, which can be repurposed for other uses.
Within the residential sector – there has been a short term boost with the help of low-interest rates and (within the UK) the Stamp Duty Holiday, coupled with buyers looking to increase their living space to set up home-offices and potentially moving away from City Centres to rural/ semi-rural locations.
Karen Kosiba Edwards (U.S.A): I'd add that continued consolidation over the last several decades of real estate ownership into large, well-financed corporate owners means there will be opportunities for these players to grow larger as low-cost financing abounds. Existing, trusting relationships between borrowers and lenders are more important than ever in this period of uncertainty.
Some investors view this as a good time to acquire office properties that can be repositioned to reflect more flexible requirements in the future. While many leaders have admitted to being surprised at how effectively their organizations are functioning on a remote basis, almost no one sees a future where work from home prevails. When it is safe to go back, most anticipate a return to the office, although the tolerance for some remote working has greatly increased. Still, organizations value the information-sharing, collaboration, and reinforcement of cultural norms that come from joining others on-site.
There is temporarily an extremely short supply of homes available; homebuilders’ stocks are soaring as low-interest rates and families staying home have increased single-family housing demand away from the highest cost markets. Any disruption in multi-family is minimal compared to retail, hospitality, and leisure properties, which will take a while to recover; some mall properties may be repurposed into industrial distribution centers or affordable housing, which could happen more quickly as a result of the COVID-19 disruption in value. While the multi-family sector has engendered some concern, loan servicers are more well-capitalized, having consolidated and improved operating practices since the last recession. Fannie Mae and Freddie Mac continue to offer support for a significant portion of the multifamily and single-family home mortgage debt markets in the US.
Life sciences and lab spaces continue to proliferate under current conditions attracting increased investment and development capital. And the “prop-tech” industry is racing to innovate, with everything from using AI to provide rapid analysis of millions of real estate contracts to manufacturing and installing “touchless entry”, surveillance/monitoring, and locking devices to keep owners and tenants safe and facilitate a return to work.