In this piece from Preqin, Barings’ heads of U.S. and European real estate research explore the ways in which structural shifts within cities and industries are presenting an evolving set of opportunities and risks for investors.
It is often said that the only constant is change, a sentiment that seems more relevant than ever as the maturing and extended cycle intersects with increasingly disruptive forces. Recent technological advances have taken hold fast and have had far-reaching consequences, altering entire industries as they proliferate and creating new ones along the way. Technology changes and slower-moving but powerful secular shifts in demographics and human behavior are driving the growth of “new economy” sectors, altering the way people live, work and shop, and directly transforming the demand for real estate.
Disruption and change create opportunity for real estate investors, which can recognize and capitalize on both cyclical turning points and structural trends that are expected to persist through cycles. An active and creative approach to asset and portfolio management can further enhance opportunities to maximize risk-adjusted returns.
Heading into 2018, investors appear more cautious and selective in acquisitions and more focused on portfolio positioning as cyclical and geopolitical concerns draw attention to downside risk. The extended expansion continues to support improvement in real estate fundamentals and present investors with an evolving set of opportunities, driven by shifting growth dynamics within countries and within cities. Success at this stage of the cycle requires thinking beyond the impact of shorter-term cyclical factors to secular and structural trends that will drive long-term performance.