Covid-19's Effect on the Commercial Real Estate Market
Industrial Estate - The Sector Which is Going to Weather the Current Storm
Insights from the live broadcast held by Bespoke Connections featuring;
Hugh Elrington, Managing Director of Barwood Capital, UK and
Peter N. Wenzel, Managing Director of RLI Investors, Germany
Ankush Mehta, Founder and CEO of Bespoke Connections
The coronavirus pandemic that has swept the globe has disrupted the Commercial Real Estate Market. As economies have shut down to combat the outbreak of the virus, what has been the impact? Real Estate investments have been called into question as businesses look for support in a time of immense uncertainty and change. Here are some insights from our panel.
Real Estate Recovery
Peter Wenzel shared how during the pandemic RLI has looked to other markets outside Germany, to the west and to the east. They have found very attractive logistics markets, especially in the east, where Poland and the Czech Republic have a very bright logistics future ahead. The inclusion of selected properties from Eastern Europe strengthens the return performance with promising prospects and the current return advantage of up to 2%. That’s very attractive for people looking for long term stable income or yields.
“RLI’s predictions in the past have always worked in a very volatile market environment. RLI is expecting the market to be a little less volatile in the next couple of years because COVID did probably slow it down a little. We are very positive to achieve an annual distribution yield of 5.5% over a ten-year period.”
Hugh talked us through Barwood Capital’s total return driven investment strategy of a value-add approach to target a 13-15% IRR to investors in sector where it sees growth driven by technology and demographics. For Barwood Capital, it is all about finding those under managed, obsolete sites or assets and unlocking value through its planning, development and proactive asset management expertise to create best in class well let product, attractive to long term income investors.
Retail Stock
Has the UK got too much retail stock? Whether you talk about high street retail, retail warehousing or shopping centres, something’s got to change. The panel predicts a massive repositioning in the retail sector both in terms of what it’s used for and how tenants are charged. They may be repurposed to being partly retail, partly click and collect last-mile delivery units and may also be used as trade counters; rents based on total store revenues could replace the standard UK leases, for example. Whoever comes up with the right solution for retail going forward, will make a lot of money.
Retail in the future is likely to be connected with forms of entertainment and food and beverage. People don’t need to go outside their house to buy everything they need for daily living since much of it can now be ordered online; shopping areas need to deliver something else.
Development Strategies for Logistics
Globally, logistics tenants are reconsidering their early centralized approach and are now looking for properties catering to submarkets to mitigate risk.
There is a growing demand for land or logistics space close to urban areas; the pressure on those spaces feels even bigger now than before COVID because it is all about time: how quickly can you reach your customer? Cities are reluctant to designate land for logistics because it’s loud, it’s dirty, it’s 24/7, it’s not attractive.
Industrial real estate is the sector that everyone wants to be in at the moment. And given the background research and some future projections, it’s the sector which is going to weather the current storm better than other sectors of the market.
Through the crisis, we have learned and gained some confidence about our tenants and our business model: we have the right niche at the moment.