The new real estate cycle: How changed perceptions will be consequential

There have been some fundamental shifts in real estate markets since this point in the last cycle; some well-documented – like global disruption to office and retail sectors – others more subtle, such as a change in perceptions around real estate investing.

One of the key faces of change I’ve observed in the last 20 years relates to the way investors think. For a long time, real estate investors focused on investing in logistics, offices and retail property – and the specification of those buildings didn’t deviate a great deal. That worked in a market with consistent structural drivers. The phenomenon that shook this up was ecommerce, along with remote working technology – both accelerated by the pandemic. This changed the amount of space that was needed, but also the nature of the space and where it had to be. Now with AI gathering pace, demand for different types of real estate, such as data centres, brings a further dimension and an ever broader set of investment opportunities.
  
This extent of change in a relatively short period of time has caused real estate investors to really stop and think about what drives investment performance. That’s why, today, investors are much more tuned in to structural trends as a way to target income growth, seeking investment strategies that can tap into these drivers. Understanding how these dynamics apply to individual real estate markets remains a prerequisite, with opportunities often nuanced by country or city. 
 
Shifting perceptions
More broadly, perception around the role of real estate investing appears to be shifting. Linked closely to the real economy as a real asset, a simplistic depiction of real estate investing positions landlords as beneficiaries of economic growth through rent increases. However, there is growing recognition of the fact that real estate is an integral part of the economy. This is visible through the high-quality rented housing private capital is helping to deliver, as well as the multitude of other buildings that economies need to function well. Our UK logistics platform, Active Growth Logistics Partnership (AGLP), houses 630 small and medium size businesses, for example, serving communities across the country.
 
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