How to invest in non-traditional global real estate

Experts

Where are the opportunities in property? Chris Bedingfield at Quay Global Investors looks at some of the options?
Glass balconies on a high-rise condominium on Biscayne Boulevard. | Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images

Real estate has traditionally been a popular choice for investors, and for good reason – it is well positioned to deliver attractive, long-term, inflation-protected returns.

But how do investors buy real estate?

For many, the journey begins with their own real estate needs, and then usually acquiring an investment property. In recognising other property sectors such as commercial or retail, the question becomes whether to invest directly or through unlisted or listed funds, and finally looking at overseas opportunities.

Global listed real estate

A great way to invest in overseas real estate is through Global listed real estate. With a market capitalisation of around $2 trillion, the global real estate sector is about as big as the whole Australian share market, but with around 300 companies to choose from. It’s an asset class that has in some ways been overlooked, making it inefficient – resulting in plenty of opportunities and strong long-term performance.

Global real estate is a diverse asset class and includes sectors such as data storage facilities, self-storage facilities, life sciences (facilities that house biotech and medical research) as well as manufactured housing. It would be hard for many investors to get exposure to these sectors within Australia.

Between 2000 and 2021, global real estate outperformed Australian equities, international equities, infrastructure, bonds and even gold. This is in spite of the setbacks from the Global Financial Crisis (GFC) and the COVID pandemic.

So, when investing in global real estate, what are some of the sectors on offer? How do we approach investing? We see a few investment themes playing out – what we call ‘Generation Rent’, the ageing population and the primacy of best-in-class retail. Here are some examples.

Self-storage

Self-storage has been around for many years, mostly as a niche commercial real estate asset class. In the United States, listed self-storage REITs have over the long-run demonstrated superior, consistent returns.

These opportunities are relatively difficult to get access to directly, but they are accessible in the listed space. In the United States, we observe the millennial rivalling the baby boomers as a demographic cohort; these people are in their 30’s and have opted for urban living.

With urban living comes a need to rationalise space and self-storage demand increasing as a result. Self-storage benefits from change; Covid accentuated a great move out of the cities, and we’re seeing a more recent return to the city.

In Europe, we believe the self-storage trend is just beginning. We believe the sector will continue to do well throughout the business cycle.

Seniors’ housing

With the first of the baby boomers turning 80 in 3 years’ time; some of them will need housing to suit their needs.

This ‘silver wave’ will have more complicated or social needs, and families are going to need to find specific accommodation to support that. The economic environment usually bears little influence on such decisions.

With new supply at low levels compared with the coming demand, we believe seniors’ housing is an opportunity with great potential.

Retail

The narrative against retail real estate has been long-told – e-commerce killing the mall and changing the way we shop. Certainly, the impact that Covid had on retail accentuated this. We agree that some malls – what we call the mid-market malls – are in trouble as their relevance is questioned.

However, at each end of the retail real estate spectrum lie great opportunities.

The first is convenience retail, with supermarket anchors and mostly e-commerce resistant service-based specialties.

At the other end are destination malls, what we would call best-in-class retail. Post-COVID, the narrative has shifted somewhat, with the cost of online customer acquisition and distribution costs hampering online retailer margins.

Also, what started as ‘revenge spend’ has continued, with continued strength in ‘bricks-and-mortar’ retail sales in the United States. We still believe best-in-class retail makes for a worthwhile investment.


Chris Bedingfield is principal and portfolio manager for Quay Global Investors.


This article represents the views only of the interviewee and should not be regarded as the provision of advice of any nature from Forbes Australia.  The article is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Past performance is not necessarily indicative of future performance. You should seek independent financial and tax advice before making any decision based on this information, the views or information expressed in this article.