The individual investment decisions embedded in real assets strategies are being shaped by several pronounced mega-trends that govern our way of life, many of which have been accelerated by the extreme events of the past two years. Real assets managers must reformulate their strategies to reflect this new reality.

Within real estate, for example, the future of office has been widely debated. The definition of office began to evolve with the advent of flexible workspaces 10 years ago, but work-from-home mandates through the pandemic have increased uncertainty.

There is a growing consensus that the office will return in some form, with an emphasis on amenities that lure workers away from the convenience of their own homes. Real assets managers must decide which incentives will prove most effective.

The demise of physical retail has been another long-term trend driven by a sustained increase in e-commerce. This has been exacerbated by lockdowns and is unlikely to be reversed, but pockets of opportunity remain. Grocery and supermarket-anchored schemes are proving attractive, alongside open retail warehouse schemes. Finally, ultra-high-end and experiential retail is thriving.

Meanwhile, real estate managers are fighting back against the pressures on traditional retail, with vibrant mixed-use spaces that include residential, office, leisure, education, healthcare and civic spaces. “The introduction of these mixed-uses helps to evolve traditional shopping centres into town centre destinations that serve the whole-life needs of a local community,” says QIC Global Real Estate managing director Michael O’Brien.

“The 2020s will be the decade where the seeds are sown that will transform infrastructure in decades to come”

Tania Tsoneva
CBRE Investment Management

The rise in e-commerce is also creating exponentially greater demand for logistics, particularly those assets sited on urban infill to support same-day delivery. And e-commerce is not the only tailwind. Logistics demand is also being driven by a shift in inventory models that is resulting in users carrying more safety stock. We are moving from a ‘just-in-time’ model of commerce to a ‘just-in-case’ model, supported by a growing recognition of the revenue contribution of customer loyalty. Intermodal logistics assets sited at airports and seaports are therefore also attracting real interest.

Residential is another flourishing sector, driven by a structural, global undersupply. Sweet spots include market-rate US multifamily, which is benefitting from the added advantage that government-sponsored Fannie Mae and Freddie Mac currently have to allocate half their origination activity to affordable housing.

The single-family residential sector is also attracting growing attention, as covid intensifies a dispersion trend that is countering urbanisation. Single-family rental is still classified as alternative in the private markets, but alongside senior and student housing, shifting demographics are making these alternative sectors increasingly attractive. A dramatic spike in spend on pharmaceuticals, meanwhile, is carving out a new growth sector in life sciences.

Data demand

Equally, the infrastructure opportunity set is unrecognisable today compared with 10 years ago. Digital assets including data centres and fibre have proved their essentiality through the pandemic and are now an integral part of any infrastructure portfolio, while a growing recognition of the severity of the climate emergency means vast capex requirements in the fields of renewable energy and the energy transition more broadly.

As we move forward and technologies advance, attention will increasingly shift from the decarbonisation of power generation to hard-to-abate sectors including industry and even agriculture, creating untold demand for infrastructure investment.

“The 2020s will be the decade where the seeds are sown that will transform infrastructure in decades to come,” says Tania Tsoneva, who leads CBRE Investment Management’s global infrastructure research capability. “We still don’t know what the future of green hydrogen will be, or autonomous vehicles, or sustainable biofuels. What will make the assets employing these emerging technologies infrastructure is their feasibility and the business models they employ.”