1- Trading places
Abu Dhabi Investment Authority has sat atop the institutional capital mountain every year since PERE first published its ranking a decade ago. The sovereign wealth fund seemed immovable. But its tenure at the top has come to an end.
The market value of ADIA’s allocation to the asset class has fallen from $62.1 billion in 2020 to $48.7 billion this year, shunting the investor into third place in the ranking. APG has taken over the number one slot – the value of its real estate portfolio grew by over $10 billion in the last 12 months to $64 billion. Allianz Real Estate holds on to its number two position.
See our deeper analysis of this shift here.
2 – Regional races
Historically, North American capital has dominated the ranking. But this year, the weight of capital is held by Europe-headquartered institutions.
In 2020, the value of European investors’ collective allocations to the sector stood at $520.5 billion. It is now $616.5 billion. The value held by North American capital is now $520.7 billion, down from $552.1 billion last year.
Asia-Pacific-based institutions have also seen the collective value of their real estate portfolios grow in the last 12 months by 15.4 percent, aided in part by the arrival of China Investment Corporation in the ranking’s top 10 – the market value of its property allocations has doubled in the past year – and the entry of Japan’s Government Pension Investment Fund in the top 50 after it made a bigger play for a slice of the global property pie.
3 – Seeking resiliency
The covid pandemic has been disruptive for some property sectors more than others as the global population was forced to live virtually. Take the office sector, for example. At this juncture, there is still some debate and uncertainty about how tenants will use these assets going forward.
We won’t be going back to the “old normal,” says Christoph Donner, US chief executive officer of Allianz Real Estate, so office lease structures will have to evolve to accommodate flexible working.
GIC’s head of real estate Australia, Sunny Tsun, believes longer-term working patterns are likely to vary across geographic markets with those living in small apartments in densely populated cities far less likely to embrace long-term home working.
Physical retail, as we know, was already taking a hit pre-pandemic as shoppers moved online.
Covid has hastened investors to reassess existing portfolios and future buying needs. And naturally focus has shifted to assets seen as resilient to future crises – residential and logistics – and that play to the needs of the so-called new economy, with data centers being just one example.
4 – ESG is a primary focus
There is a very clear sense of urgency among the investor community on everything ESG related, from delivering on carbon reduction commitments, to contributing to the health and wellbeing of tenants, and improving diversity and inclusion within their own businesses. As one commentator within notes, ESG is now the first item, or is at least very high up, on the priority list.
Just take the musings of Allianz’s Donner as an indication of the importance that leading capitalizers are attaching to sustainability, and the race to net zero in particular. Allianz is not making any investments that have “no clear path to carbon neutrality,” he says. Sentiments that should be reflected by all institutions, whatever size they may be. There is no room for side-stepping responsibilities now.
5 – Buddy up to gain a competitive edge
A growing number of investors are partnering with operating businesses to gain an advantage in a sector that gets more competitive with every passing year. Investors are tapping into the specialist sector and local market knowledge these businesses can offer as a way to access property dealflow and assets. In turn, institutional investors can offer these businesses the much-needed capital to develop and scale-up – “a real win-win,” says Jelte Bakker, global CIO of opportunistic real estate and head of Asia-Pacific at Macquarie Asset Management.