Technology is changing the nature of real estate investment, requiring investors to adopt “smarter” strategies, according to a global investment management company.
Speaking in Sydney earlier this week, TH Real Estate global co-head of research Alice Breheny said technology is disrupting the investment strategies traditionally applied to real estate assets.
“The pace of change is really significant. Anyone who is choosing to ignore this is daft,” she said.
“There’s no shortage of verse about the ramifications of technology, particularly on the retail sector, but we just think you need to have a smarter strategy.”
Ms Breheny indicated that technology is not causing demand to shrink – it is changing the nature of demand.
“This is really important in thinking about sustainable strategies – what should physical real estate look like in the light of technological advances? Do we need as much physical real estate?” she said.
Technology is one of five mega-trends influencing real estate assets, according to Ms Breheny. Demographics, urbanisation, ageing populations and globalisation are the remaining four.
Monitoring such trends, she said, helps to identify the long-term structural drivers of demand and economic cycles.
“Most asset classes are impacted by economic cycles [and] in real estate, investors will continue to try and exploit economic cycles to invest at the optimal time,” Ms Breheny said.
Commenting on the outlook for returns, Ms Breheny said investors are lowering their expectations.
“People are lowering their return expectations for real estate because it is becoming more transparent, and ... more liquid, and therefore you aren’t rewarded for illiquidity,” she said.
“It’s a challenge finding double digit returns anywhere other than going quite a long way up the risk curve.”
Ms Breheny added that real estate assets should no longer be looked at as defensive.
“I think that’s not good enough anymore and we need to make sure we’re investing in progressive buildings and creating progressive strategies,” she said.
[Related: Time to ‘de-risk’ away from property: PIMCO]