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Real estate: Ideas that CLIC

Real estate: Ideas that CLIC
Key takeaways
Real estate houses the economy
1

As the oldest asset class, it is relevant to all of us in our daily lives.

We will always need somewhere to Consume, Live, Innovate and Connect – somewhere to CLIC
2

These secular trends guide our thinking and shape our views in an ever-changing market environment and allow us to invest in the most relevant real estate today.

Longtime real estate investors are well-acquainted with the “Residential, Industrial, Office and Retail” framework that has defined this space for decades. But Invesco Real Estate takes a different approach — one that we believe better represents the evolving range of opportunities that real estate offers investors.

The evolving role of real estate

Real estate literally and figuratively houses the economy. Even though it may be the oldest asset class, it is always relevant to not just investors, but to each and every one of us in our daily lives.

We always need somewhere to Consume, Live, Innovate and Connect – somewhere to CLIC. These are the structural trends that guide our thinking and shape our views when it comes to seeking out new investment opportunities in what is a constantly evolving market environment.

Opportunity: secular trends guide our thinking a.	Consume, Live, Innovate and Connect

Consume

Why is this important? Household consumption accounts for about 60% of gross domestic product in developed markets,1 and many real estate sectors will be affected by changing consumer behaviours. For example, e-commerce is growing in popularity and is fast becoming more focused on experiences rather than products alone.

What does this mean for real estate? Segments of significant interest include logistics and fulfilment centres serving major populations, U.S. medical office facilities, and European hotels in gateway cities. However, we view commoditized retail, particularly fast fashion or internet-vulnerable tenants, as an area of potential risk. 

Structural drivers

E-commerce
Fulfilment of online spend requires investment in distribution facilities
Leisure
Well-located amenities are immune from online substitution
Aging population
Increasing older cohorts changes consumption patterns
Connectivity
Enables increased online / mobile consumption
Global mobility
Experiential and leisure demand
Science & technology
Innovation and health drive increased spend

Live

Why is this important? Where we live is a key part of any society. Many developed markets are experiencing a structural undersupply of homes, with changing demographics and ongoing urbanization shifting demand patterns. The boundaries between where we live, where we work, and where we play are becoming increasingly blurred, which is driving further shifts in the required amenities and connectivity of homes.

What does this mean for real estate? One area of particular interest is efficient and amenitized mass-market housing that serves dynamic and growing urban and suburban locations. Downside risks, however, include some markets that are experiencing stretched affordability, while premium-priced products may have limited depth of demand.

Structural drivers

Urbanization
Continued demand for efficient accommodation to house growing populations in key cities
Aging population
Increasing older cohorts changes the pattern of housing demand
Flexible working
Work-from-anywhere changes housing needs
Global mobility
Increased preference for flexible accommodation
Connectivity
Aging housing stock struggles to meet modern requirements

Innovate

Why is this important? Developed markets increasingly rely on research and innovation to drive economic growth. Innovation-driven cities have shown outperformance over other markets, and this trend is expected to remain. The digital economy grew 2.5 times2 faster than global GDP over 2004-2019, with technological advancements continuing to support critical inflection points and accelerate the growth of sectors such as artificial intelligence and life science.

What does this mean for real estate? In this space, we like flexibly configured office and life science facilities in key innovation hub markets where both creative companies and talent want to locate. 

Structural drivers

Science & technology
Ongoing investment and innovation across technology and health science sector
Connectivity
Innovation firms operate increasingly internationally
Global mobility
The war for talent in science and technology is global
Urbanization
Key cities continue to attract concentrations of knowledge and expertise

Connect

Why is this important? Data access is becoming an ever more critical component of corporate and social infrastructure. This has been underlined during the COVID-19 pandemic, supporting the ability for businesses to operate with a distributed workforce. Macro demand drivers are growing exponentially, driven by a broadening array of big data generators (cloud platforms, content distribution, social media, the Internet of Things).

What does this mean for real estate? Corporate IT is becoming increasingly important, and the need for data access and security is now at an all-time high.

Structural drivers

Connectivity
Increasing pressure on high speed physical and data connections
Flexible working
Work-from-anywhere relies on reliable high-speed data connections
Urbanization
Pressure on transport and data capacities
Leisure
Growth in on-demand data/streaming services
E-commerce
Demand for rapid fulfillment requires strong infrastructure facilities

Conclusion

We need places to Consume, Live, Innovate and Connect — these needs are the same today as they were hundreds of years ago. What has changed is how we CLIC, and understanding these structural trends is what allows us to invest in the most relevant real estate worldwide today.