Few would disagree that a strong regulator is required for a strong superannuation system. But APRA’s myopic focus on cost to members means its $70,000 Christmas party is unlikely to help its reputation.
Good investing requires real sacrifices, according to Oaktree’s Howard Marks, but you can’t expect to be compensated just for making them.
What COVID-19 means for property investing
In 1999, towards the end of the internet bubble, there was a lot of talk about people now being able to work from home and, perhaps, being more productive and happier in their jobs, sounding the death knell for mainstream office space. It didn’t happen. Will it happen this time after we come through COVID-19? Mary Ludgin thinks not.
Ludgin is a senior managing director and head of global research for the real estate investment management firm Heitman, which advises institutions on investments in global real estate private equity, debt and REITs has its headquarters in Chicago with approximately $65 billion in assets under management. It has an Australian business with $4.4 billion in AUM across 13 different investment assignments from a number of large institutional investors says its local managing director, Beau Titchkosky, based in Melbourne. The firm has offices as well in Hong Kong, Tokyo, Seoul, London and Frankfurt. Ludgin who has been with Heitman for 35 years is a former urban planner for the City of Chicago and is currently a governing trustee of the Urban Land Institute as well.
She said from Chicago early this month: “As much as I’ve loved working from home, there is a lot I miss, personally, about going to the office.” And then there is the professional aspect. For instance, she said, surveys by JLL (Jones Lang LaSalle, a global property management, leasing, and brokerage firm) which looked at the likely effects of working from home, one of the things missing was “idea generation through random contact or dialectic”.
Ludgin cited a survey of CFOs by Gartner, a financial research company, which found that 74 per cent planned to shift 5 per cent of the workforce to work from home, more-or-less permanently. “But when the human resources people say they are not seeing the same productivity from those working remotely it may be a different story,” Ludgin said.
“There will be some downward pressure on demand for office space due to post-pandemic work-from-home initiatives, but we expect office design to shift as well, with more space between desks. Once we have a sense of when it’s safe to return to working in offices and how much distance is demanded, we’ll know better. I have a feeling we’ll backside a lot [towards previous norms] as time goes on.
“However, if pandemics become a regular occurrence then it may be different. In some markets around the world we had already been seeing a backlash against the open-plan layout and hot desking and a need for more space, especially for people who are trying to do ‘thought’ work.”
Heitman has been investing in long-term growth trends within the property sector over the last 50 years and Beau Titchkosky believes the current global dislocation in markets will continue to provide opportunities for Australian and New Zealand institutional investors.
He says, the demand for real estate across its regional offices in the US, Europe and Asia Pacific will continue as we provide investors with access to Equity, Debt & REIT opportunities across the various sectors.
In the shorter term, however, there will undoubtedly be some pain for landlords as well as their tenants. Ludgin says that apartments for rent have historically represented a resilient sector in the overall property market. “But now a lot of people have little or no income, so we and others are working with tenants to have leases extended and/or rents reduced. Tenants are actually renewing at a higher rate than normal for this time of year because no-one wants to move.”
Similarly, in the office space, led by law firms, the tenants are saying “they are not paying… One said, I heard, ‘so sue us’.” Office buildings, shopping centres, and logistics facilities will see higher vacancy rates as the economic downturn triggered by the pandemic causes firms to downsize or go out of business.
The logistics sector, which has been a success story for Heitman and other investors in recent years is now benefitting from a global spike in online shopping due to shelter-in-place orders. . In the aftermath of the pandemic she expects the logistics sector to see an additional demand boost as retailers and manufacturers shift away from “just-in-time inventory practices. There will also be more on-shoring of jobs which had gone offshore, which will help lift demand for some industrial and commercial space.
Student housing may suffer in the short term, due to a switch to online learning, but longer term this will vary depending on the types of students and the competition for getting into certain schools. The US, much more than Australia, has a tradition of students leaving home to go to college. “Our focus will be about housing for the most selective of schools which will present the most demand,” Ludgin says.
On the retail front it will be an ugly couple of years, she says, where a lot of businesses will be killed off. Those that survive will do better than before, she says. Interestingly, she thinks that a global recession may pose challenges for some small e-commerce retailers if they cannot afford the advertising requirements to obtain customers.
In the aged-care space, which has been another growth area for Heitman, the prospects remain strong, Ludgin says. While in the US there had been a sell-off of listed companies in this space due to challenges posed by the virus, in the UK and Europe there had been less negative sentiment in the past couple of years. “I still believe the need for aged-care facilities is not going away,” she says.
“Recessions tend to have some expected consequences and some unexpected ones. This one will prompt some changes in behaviour, triggered by what is a mortal risk. Some of the consequences will be lasting… In terms of opportunities, the best returns tend to come from investments made during or just after recessions. There will be a need for rescue capital, for instance. Debt is one of the first places investors look to in a time of uncertainty. That’s one of our strengths.
Titchkosky said that the ”denominator effect” created by the sell-off in public markets will abate and see the desire for real assets to provide a steady source of income with capital stability persisting. Heitman will continue to work with Australian & NZ Institutional Investors during this time to look through the “noise” and give them access to the opportunities we are seeing in commercial real estate markets across the globe. “All three capabilities (Equity, Debt and REITs) utilise the Heitman Research Engine which Mary runs with a team of 17, three of whom are in the Asia-Pacific region and two in London.”
– G.B.
