LREF: The ‘softer’ factors influencing global investment

Global real estate investment is about more than the figures. As factors including liveability, placemaking and sustainability play an increasingly large role in overseas investors’ decision-making, what impact is this having on where and how they choose to splash their cash?

When it comes to global investment, there are more factors than ever driving decisions on how, when and where to make plays – and not all of them are based on cold, hard stats alone. Three international investment experts joined EG on a podcast at LREF last week to examine the considerations driving a fresh approach to spending.

Given a discussion around global investment wouldn’t be truly international without a view from an overseas voice, Greater Sydney Commission chief executive Sarah Hill was perfectly placed to kick off the debate.

“While yields remain absolutely critical for investment decisions, investors are increasingly looking at longer-term opportunities for cities and are being drawn to cities trying to plan better to encourage more growth,” she said. “Ultimately this comes down to creating environments people really want to live in.”

Rasheed Hassan, Savills’ head of cross-border investment, added that there were other factors to consider: “From a global shopping perspective, people are looking for comfort. They are looking for something they know and for familiarity. The reason London has been such a big magnet for money from, say, Asia, is that there is a legal system and a framework that is very similar. Equally, they like places where the is a cultural affinity. So, there could be an opportunity in London or Los Angeles, and they might know someone who went to school there or have family living in that city or at college nearby.

“I am aware it sounds like I am reducing some very important factors around real estate investment into much softer-sounding things that are seemingly detached from the underlying real estate itself. But with overseas investors it plays a huge part. If you speak to a London investor about investing in London and why they are looking at certain assets, you will find it is very much about the real estate and the asset. But when it comes to global shopping, the softer elements play more of a role.”

But Hassan was quick to add that these “softer” elements were as well as – rather than instead of – the facts and figures. “Interest rates, currency costs, hedging costs all play a major role too, of course,” he said.

David Inskip, director of EMEA strategy research at CBRE Global Investors, agreed with Hassan on the capital markets side of things and added that the value of place is becoming an increasingly relevant consideration for overseas investors. “It is really all about returns in the end, but there are some things people are thinking about now, even down to whether what they are looking at is in an attractive place with character – places where people want to spend their time.”

As investors are looking more and more at the draw and aesthetics of cities and districts in their entirety – as well as assets in isolation – will we see more competition between cities around the world? “It is certainly a reality that cities are increasingly competing for talent,” said Hill. “And if they are competing for talent, it means they are also competing for investment and certainly for a place in the best Liveability Indexes, as these are very much seen to define success or failure these days.

“Fundamentally a good city – and, by default, a good investment option – comes down to where people want to live. And that is defined by how easily they can travel to work or get to school. It is just about making life easy for people. In Sydney so many people are attracted to more than the great employment opportunities. They like the lifestyle benefits – being able to leave work and go to the beach is a pretty good sell to a lot of people.”

But she added that liveability and quality of life were intrinsically linked to affordability. “The cost of housing is a key driver in decision making. And so, naturally, there is competition. We are certainly experiencing differences between Sydney and Melbourne and there’s a very healthy rivalry between our two rapidly growing cities.”

This point was picked up by Inskip: “From an investor’s point of view, it will always come back to the return target and the amount of risk that they are prepared to take to be able to hit that target. But these factors – liveability, aesthetics, wellness – are becoming more recognised as being key factors to consider.”

As for the sectors to watch for future investment, Inskip added that some of the “alternatives”, such as student accommodation and hotels, were no longer considered to be alternatives because of their relative longevity as investment options. But he highlighted some up-and-coming asset classes to keep an eye on. “We have heard about Ocado investing a lot of money in vertical farming recently. I mean, who had even heard of vertical farming before this week? I had, but many people won’t have and that seems like something where there’s potential.

“But I think a lot of the emerging sectors will be around residential, off the back of population growth – and, in particular, urbanisation. I am not sure what the future of co-living will be. I’m sure there will be some cities where it will really work and others where it just won’t be culturally appropriate. But one area where we will definitely see a lot of growth is affordable housing.”

On the same point, Hassan said that he would be keeping an eye on the London market – and more broadly on one sector in particular: “One area that I think hasn’t developed, but I think will develop, is co-working investment where you are not buying assets to let to a WeWork-type company but you are actually carving up buildings into much smaller sections. Effectively these will be heavily multi-let investments. I think we will start to see an asset class emerging that is almost like a hotel for offices.”

The panel

  • Sarah Hill, chief executive, Greater Sydney Commission
  • Rasheed Hassan, head of cross-border investment, Savills
  • David Inskip, director of EMEA strategy research, CBRE Global Investors

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