Real Estate

Three listed real estate sectors riding the tailwinds of the crisis

By James Maydew
BSc (Hons), MRICS Head of Global Listed Real Estate Sydney, Australia

The word unprecedented has been thrown around a lot recently, and regardless of whether a precedent does for the current health emergency, from a market perspective we are truly in uncharted territory.

In listed real estate, investors are not only dealing with a financial crisis, they have to navigate a class of assets whose physical attributes have shifted dramatically over the space of a few weeks. Lockdowns have fundamentally altered the way we use space, and consequentially the way we value space. Some aspects of this revolution will be reversed with the lockdowns; others may not. Many are part of long-term trends that have been pulled forward by the crisis and there will be no turning back.

From our point of view, investors in listed real estate at the current time should concentrate on three key attributes when evaluating assets: sustainability of cash flows, balance sheet security (particularly access to liquidity) and the viability of the business model in the new “normal”.

When considered under this lens, we believe a number of sectors stand out as stable performers in unsteady conditions.

Data centres and telecommunications towers

The long-term tailwinds were already pushing this sector along at a heady pace, driven by cloud computing, the internet of things and the prospect of autonomous vehicles on the horizon driven by 5G.

As the world embarks on a massive experiment in working from home, demand for data has skyrocketed, with internet traffic increasing by 30% in just a few weeks.1 Online collaboration and video conferencing has become the core of many corporate operations, and society seems to have become fluent in apps like Zoom overnight.

Of course, it’s not all corporate demand. Educational and personal use are a large part of the story as well. But whereas those two sources of demand are likely to normalise once restrictions on movement are lifted, the same may not hold true for corporate demand. Many companies will be assessing their business models through the crisis and wondering if they really need all that floor space. In our view, a step change in attitudes to remote working will fuel further demand for data and growth for the real estate infrastructure to supply it.

Medical office buildings

This is a property class which has recorded very stable income for a long period of time.2  Demand is needs-based; people don’t generally have much of a choice as to whether to visit the doctor, and under the current circumstances the other major option – the ER – becomes less attractive as the risk of contracting COVID-19 increases.

The crisis is impacting the sector to some degree, with declining numbers of profitable elective surgeries,3 but many of these can’t be put off indefinitely.

Longer-term, the sector will continue to be supported by aging populations across the developed world: US data shows that those over 65 on average visit medical office buildings three times as frequently as those under 45.4

In some instances public health service leases on property portfolios in this class can effectively guarantee a government-backed income stream.

Logistics and cold storage

In the past we’ve described cold-storage as recession-proof, and that’s certainly being borne out even in these most unusual of times. In our view, supply chains for essential consumables should stand to benefit from sustained demand through the downturn.

Logistics properties exposed to e-commerce should also benefit immensely from the closing down of thousands upon thousands of physical retail stores. Lockdowns and social distancing will likely hasten the long-term trend to web-based retail, as millions of consumers become more familiar and comfortable with shopping online.

To see the effects of this movement, look no further than job advertisements. Amazon hired 100,000 new employees over the past month and is looking for 75,000 more. In Australia, Myer5 have just announced a huge spike in their online retail sales over Easter leading to 2,000 furloughed staff to return to meet that demand.

In our view, investors would be wise to seek exposure to that kind of demand.

 

James Maydew spoke about this in detail during a recent webinar, ‘Navigating the new normal: managing client capital in times of extreme volatility,’ which you can watch here.

Subscribe below to Institutional Edition to receive my latest articles

Head of Global Listed Real Estate
  • Communications
  • Covid-19
  • Institutional Edition
  • Listed
  • Office & Industrial
  • Real Estate
  • Technology
Share this article

Subscribe to our Insights

Here's what we found for you

Here's what we found for you

Here's what we found for you

Here's what we found for you

Our Privacy Policy explains how we handle personal information and use cookies and website tracking. We will follow the cookie and tracking settings you have selected in your browser.

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Cookies & Tracking on our website.  We use basic cookies to help remember selections you make on the website and to make the site work. We also use non-essential cookies, website tracking as well as analytics - so we can amongst other things, show which of our products and services may be relevant for you, and tailor marketing (if you have agreed to this). More details about our use of cookies and website analytics can be found here
You can turn off cookie collection and/or website tracking by updating your cookies & tracking preferences in your browser settings.