Covid-19 is not over yet. New variants; second, third and fourth waves; and the logistical challenges of vaccinating 7.8b people around the world means that ‘post-COVID’ is likely a way off. As some United States’ cities begin to approach herd immunity with vaccination programmes, it is anticipated that some parts of normal life can return, but with travel restrictions and uncertain tenant demand, cross-border institutional property investing remains a challenge.
Despite the darkness of the moment, there is remarkable optimism expressed by institutional investors, as detailed in the recent International Investor Survey from AFIRE – a trusted barometer of institutional sentiment and commercial real estate for three decades. The most recent report was released in May 2021, with a strong indication that investors are crossing borders and finding property worthy of investment. At the same time, they are changing their approach in novel ways. In the past, large institutions focused on large office buildings in the best gateway cities. Although a major portion of those assets are and will remain in institutional hands, the appetite for more of the same is waning.
Institutional investors – usually pension plans, insurance companies, banks or sovereigns – tend to invest in a more conservative manner with a longer time horizon than other investors. Their capital structure requires a thoughtful approach, where the next quarter is less important than the next decade. In this time of transition to a so-called post-COVID world, their focus is first and foremost on the long term. That may partly explain the record level of commitment to ESG principals and high-level concern about the effects of global warming.
Institutional investors are remarkably optimistic. For example, 76% of AFIRE International Investor Survey respondents declared they would be a net buyer of US real estate in 2021, compared to 50% before COVID. When asked about their outlook for five to ten years from now, 79% expected to be net buyers. In 2021, they have allocated roughly the same amount of capital they allocated in 2020 even though they were only able to invest half of what they allocated last year due to the pandemic. In the UK, 38% of investors plan to increase investment in US property markets over the next three to five years. When asked whether they will be net buyers or sellers of US real estate, 76% of global investors raised their hands as buyers. This is a marked departure from months before COVID when only 50% intended to be net buyers.