This article is sponsored by CBRE Investment Management
How has the role of asset management evolved over the years?
Adrian Baker: With interest rates and bond yields falling over the past five to 10 years, we have seen significant yield compression in real estate, which has made all investment managers look good and therefore diminished the value of asset management in the real assets industry. The challenge is that yields are in the process of bottoming out, so the importance of asset management across the lifecycle of an asset will be greater as performance will be driven by income growth.
Laurie Lagarde: The role of asset management today has to have a greater focus on the occupier – on user needs. There is also a far greater emphasis on ESG, particularly in the European market where I operate. In Europe, it is now mandatory to integrate ESG initiatives, of which both investors and customers are also mindful. That is an important trend shaping the future of real estate asset management.
What levers of asset management are you typically looking to pull?
LL: As I mentioned, the focus has now very much shifted to the tenant side, including building management and relationship management. It is about ensuring the quality of the customer journey, rather than just collecting income. We are also bringing ESG specialization into the logistics sector. It is important to have the right level of expert people working with us to deliver sustainable outcomes for our investors, our tenants and our buildings.
Steve Gullo: Customer service is a huge focus, particularly in the context of a residential setting, where the property is our residents’ home. We strive to operate the real estate in recognition of how critical and personal the asset is to our residents, with the intention of keeping our tenants satisfied and in place for as long as possible.
What are those shifting demands and how can you identify them?
SG: From a residential perspective, in the US, the millennial cohort is getting to a point in their lives where they are entering the family formation stage.
While that demographic was previously driving interest in urban centers, simply due to the passage of time, that demand is now shifting to the suburbs. At the same time, urban areas are getting some renewal post-pandemic, not only with people returning to the cities, but with new entrants as well. Empty nesters are starting to replace the demand from millennials who are now choosing to live elsewhere. These demographic factors must be taken into account in both the services and spaces you provide.
How do you utilize your common areas? How do you adapt residential units to fit these shifting demands? Understanding and acting on that is a big part of an asset manager’s role.
LL: My focus is on the European logistics sector. We introduced a customer relationship management function in October last year, precisely to understand the needs of our clients and also anticipate what those needs will be going forward. We pride ourselves on advising clients on the important trends that will impact their logistics strategy.
“The asset management role has to be focused on the occupier”
What role does technology play in that process today?
LL: Data is critical to anticipating supply/demand dynamics and how that is going to impact clients. We have our own data, and we also work with consultants in order to gauge what is going on under the surface. For example, we had one tenant who wanted to move into Southern Europe, but there was a severe labor shortage in that area, which our data identified.
Equally, data enables us to advise on the competitive landscape and on important differences between markets. Of course, e-commerce is booming right now, and covid has accelerated it. But there is market differentiation between countries within Europe due to cultural differences. These observations are vital in helping tenants anticipate future needs, and that is all linked to data and tech.
SG: Technology and data play a significant role in residential, as well. Technology is used in our leasing efforts, to manage resident feedback and to efficiently operate our communities. Data is analyzed to understand supply and demand trends while technology is deployed within our buildings to deliver a high level of service.
One example is the usage of hardware and software to manage package deliveries and maintenance requests. The leasing function is increasingly digital and, in some cases, entirely virtual.
That was clearly born out of necessity during the pandemic but has become a preference for many users. The latest generation of renters has grown up using technology in a wide variety of areas and is entirely comfortable with a self-guided virtual tour with no human chaperone.
What else is helping shape real estate asset management today?
SG: I think we will continue to see an evolution in terms of what residential communities look like and how they behave. We were already starting to see the lines get blurred between hospitality and residential pre-pandemic. As tourism rebounds, we will see increased hospitality demand in residential buildings and anticipate more demand for furnished apartments and flexible lease terms. Everyone values their mobility and liquidity today. Renters want to be able to pick up and go without a lot of friction.
“Customer service is a huge focus for us… particularly in a residential setting”
In addition, we will see increasingly different demographics preferring similar locations and buildings. As an example, we are observing demand from empty nesters seeking well amenitized buildings near university campuses to take advantage of educational, sporting and cultural amenities.
AB: There is a growing recognition that you need to have operator capabilities in order to own the best assets in the market and to meet the expectations of tenants. Investors are also increasingly aware that the traditional asset management model, without operator capabilities, is flawed because it limits access to the best-quality assets and their ability to add value.
LL: I absolutely agree. The asset management role has to be focused on the occupier. Things look easy today because yields are going down and value is going up. But one day that may change. And when that day comes, an asset management function will be judged on its capacity to answer tenants’ changing needs and to address ESG objectives. It is no longer just about collecting the rent.
Adrian Baker is CIO of APAC direct real estate strategies at CBRE Investment Management; Laurie Lagarde is head of the EMEA logistics operator division; and Steve Gullo is head of Americas residential operator division