The future of real estate investing
Several converging factors are causing an unprecedented shift in the industry.
The future of real estate investing
Around the time we first contacted real estate investment professionals to participate in the writing of this paper, reports were beginning to emerge about the outbreak of a novel coronavirus in Wuhan, the capital city of Hubei province in the People’s Republic of China. In the intervening months, the virus that became known as COVID-19 morphed into a pandemic, rampaging around the globe, taking lives and bringing economic activity to a grinding halt. How the pandemic ultimately plays out is anyone’s guess, but it is clear that we are unlikely to see a return to “normal” anytime soon.
With the possible exception of the two world wars, nothing in recent history has proven so disruptive to so many lives and livelihoods. Setting aside the tragic consequences of this virulent disease, its impact should be of great interest to real estate investors. Self-isolation and social distancing are having a profound effect on people’s relationships with their build environment. Work is largely happening from home as offices sit idle. Food and other supplies are being delivered while restaurants and shops quietly go out of business. Hotels are empty. Church is a virtual affair attended in pajamas. Homes for sale are being shown online.
The unprecedented upheaval caused by the coronavirus will inevitably shift priorities and perspectives. Perhaps most profoundly, it could change how we all think about physical space and how it is shared with others. Whatever short-term contortions the property market goes through in response to the economic devastation wrought by this virus, real estate investors should not lose sight of long-term changes in behavior. These will inform how people live and work in the future, ultimately shaping the types of developments that are most desirable in a world that will never be quite the same.
The investments business does not have a reputation for innovation. New regulations or technologies occasionally spur change, but fiduciary concerns and a need for predictability largely preclude sudden shifts in modus operandi. Several converging factors now threaten to upend the status quo, bringing an unprecedented revolution that is forcing both investors and asset managers to reexamine their beliefs, processes, and infrastructure.
Nowhere is this truer than in real estate investing, where technology, demographics, climate, and affordability are just some of the factors quickly reshaping how and where people live, work and play. Investors and managers need to make increasingly complex calculations, weighing sometimes conflicting concepts such as density versus distance, affordability versus desirability and economics versus sustainability. Will secondary cities that have historically been overlooked but are attractive to dynamic young populations become popular? How will commercial real estate be affected by telecommuting and declining automobile ownership? Will climate change render waterfront property worthless or spur innovations that enable a different relationship to aquatic environments? These and many other questions are being pondered by investment committees worldwide.
Predicting the future is especially problematic when the rapid pace of change makes it even more difficult to tease future trends out of current events. In response, we cast as wide a net as possible, surveying the landscape for clues and triangulating our research by combining primary research, in the form of surveys and interviews of fund managers and investors, with secondary research sources.
When the inimitable Mahatma Gandhi wisely observed that the future hinges on our actions in the present day, he was highlighting the difficulty of enacting future change without igniting a spark of some kind in the present. Investors are now confronted with a slightly different conundrum. They are facing rapid fire change whether they like it or not. The larger point, however, still rings true: Inaction is not a viable option. We hope this research will assist in making informed choices that lead to improved investment outcomes.
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This information is provided for education purposes only and is not intended to provide legal or investment advice. SEI does not claim responsibility for the accuracy or reliability of the data provided. Information provided by SEI Global Services, Inc.
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