The next 12 months may be a year of adjusting to rapid changes arising from a variety of sources, including environmental, social and governance-related (ESG) risks; geopolitical uncertainty; and disruptive technology, according to Will Robson, global head of real estate research at MCSI.
In its latest report, the company has identified five emerging real estate trends most likely to impact investment decisions during the year.
Real estate investors are increasingly integrating ESG considerations into their portfolio decisions as climate change has a direct impact on the ownership and management of property. Coastal property may be especially impacted, according to an estimate in MSCI’s “ESG Trends to Watch in 2019” report.
Many real estate investors who have diversified globally are encountering geopolitical risk. The increasingly international nature of real estate capital markets means that investors may not be able to escape these global risks. Global gateway cities are particularly exposed to such capital flows and MSCI anticipates that political uncertainty will remain a top risk for real estate investors.
MSCI says that technology’s ongoing impact on the real estate industry is fundamentally changing the role real estate plays within tenants’ business models and hence the amount and nature of the space they seek to occupy. It estimates that tenants’ business models will have important implications for the shape of real estate cash flows and hence the role real estate plays in a portfolio, as well as the way real estate investments are underwritten.
The revolution in index-based and factor investing in equity markets, which has been driven by market transparency and sophisticated analytics, has increased efficiency for investors but also led to the erosion of alpha opportunities. As a result, capital has gradually shifted to private asset classes such as real estate and MSCI believes this trend is likely to continue.
Many investors believe recent strong performance will not continue at the same pace but at the same time there is ample capital in the market, as demonstrated by the creation of the largest-ever real estate fund, by Blackstone in January. Regardless of approach, digging deeper into the data may help investors better understand how portfolios have performed during various markets.
RPA Perspective Along with MSCI’s take on investment came a summary of the way consultancy has evolved. Consolidation among real estate brokers has been significant over the past eight years according to the latest edition of Real Capital Analytics’ (RCA) annual ranking of global investment sales brokers.
In 2011, the first year of publication, 801 individual firms brokered at least one commercial property valued at $10 million or greater, but last year that number fell to 662, according to Bob White, founder and president of New York-based RCA. Significant M&A activity was most acute between 2014 and 2016 but appears to have slowed, he added. However, focus has shifted from outright mergers to acquisition of individuals or teams of brokers lured from competitors with lucrative incentive packages.
“Global reach is increasingly important and the relatively few firms that have it [at least 10% of activity in each of three global zones] collectively account for a 60% market share, up from less than 50% five years ago,” said White.
“The list of global firms is short: CBRE, JLL, Cushman & Wakefield, Colliers International and Knight Frank/Newmark Knight Frank,” said White. “Publicly listed shares among the major brokerage firms is now the norm. In fact, among the top 10 in 2018, all but one is listed, with billion-dollar-plus market caps.”
The percentage of deal volumes involving a broker has consistently increased over the years and reached 62.8% in 2018.
