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By Tom Arnold
LONDON (Reuters) – The COVID-19 pandemic has forced the sovereign wealth budget to be reduced sooner.
With world-class buildings empty around the world, hotels and half-empty stores suffering from staying afloat, the budget is withdrawing from many of the genuine real estate investments that have long been a cornerstone of their strategies.
The sovereign budget (SWF) invested $4.4 billion in the sector in the first seven months of 2020, 65% less than it was a year ago, according to unreleased knowledge of Reuters through Global SWF, an industry knowledge specialist.
The nature of genuine real estate investments is also changing, and the budget is increasingly investing in logistical space, such as storage, amid the boom in e-commerce and the pandemic, while reducing transactions for offices and advertising buildings.
Such behavioral adjustments can have seismic effects on the global real estate market, as those budgets are among the largest real estate investors and have interest worth billions of dollars. Three sovereign wealth budgets are among the top 10 major real estate investors, according to market specialists IPE Real Assets.
A great thing is whether the adjustments are structural to the funds, for which real equity is an essential element of asset elegance in approximately 8% of their overall portfolios on average, or a transitory reaction to a huge, unforeseen and unknown global event.
“The real estate industry remains part of sovereign wealth portfolios and will remain so,” said Diego Lopez, managing director of Global SWF and former sovereign wealth advisor at PwC.
“What COVID has accelerated is the sophistication of finding sovereign wealth budgets to integrate diversification and resilience into its portfolios and, therefore, for other asset categories and sectors.”
The sovereign budget was more bassist in real estate than in the public pension budget, the main investor in the sector, found Global SWF. Although they have exceeded the pension budget in terms of overall investment in peak industries and assets this year, this proportion is invested for real estate.
(Chart: sovereign wealth holdings https://graphics.reuters.com/SWF-REALESTATE/dgkpllmyopb/chart.png)
FUTURE OF THE OFFICE
The budget is affecting its existing real estate portfolios due to the arrival of social distance locks and restrictions. While other parts of its portfolios, such as stocks and bonds, recovered from the March low, genuine real estate recovery is less assured.
The price of international real estate capital is expected to fall by 14% in 2020 before expanding to 3.4% in 2021, according to the organization of real estate facilities CBRE. Analysts and academics wonder if the effect of the pandemic can be sustainable, with more people fleeing their homes and buying groceries online.
“I think there’s a real risk to some commercial advertising districts in big cities because I can’t see us all back in and out of 9 to 5,” said Yolande Barnes, a Real Estate Specialist in London. UCL University.
The price of genuine property assets on the budget fell in 2020, and those that suffered the biggest falls, adding Temasek Holdings and GIC from Singapore, the Abu Dhabi Investment Authority (ADIA) and the Qatar Investment Authority (QIA), according to knowledge compiled for Reuters. through the industry tracker. Mr. Preqin.
These 4 budgets saw together the fall of those assets from $18.1 billion to $132.9 billion, according to the data.
Reuters was unable to verify whether the decline is due to declining valuations or selling assets. The budget declined to comment or did not respond.
Many sovereign wealth budgets publicly disclose knowledge of genuine real estate investments, with the exception of Norway.
The Norwegian fund, which invested about $49 billion in real estate, up from $47 billion at the end of 2019, said last week that its unlisted real estate portfolio had yielded less than $1.6 in the first part of 2020.
The sovereign wealth budget has also largely moved away from new direct investments in London or Los Angeles in 2020, which are generally hot spots, according to genuine real estate company Jones Lang LaSalle (JLL), which said the SWF was “on the defensive.”
LOGISTICS AND BIOTECHNOLOGY
The advance of the budget in logistical properties, such as storage and distribution centers, occurs at a time of maximum demand, as other people have bought everything from toilet paper to slippers in house closures.
So this year, logistics accounted for approximately 22% of genuine real estate investments in price funds, up from 15% in 2019 as a whole, according to Global SWF data.
At the same time, investment in offices fell to 36% from 49% last year, and in real estate to 0 from 15%.
Marcus Frampton, a leading investment officer at Alaska Permanent Fund Corporation (APFC), told Reuters that the volumes of real estate transactions had “significantly slowed” in general, but that, anecdotally, he had noticed activity in commercial services such as logistics and the family circle apartment. Blocks.
Assets of equity funds increased to $4.7 billion from $4 billion at the end of June following the acquisition of multifamily and commercial REIT shares on July 1, Frampton said.
“The one at the ad stores is strong,” he added.
At a time sign, Temasek participated in June in a $500 million investment in Indonesian e-commerce company Tokopedia.
On the other hand, physical retail, a part of the assets of many funds, has been greatly affected. QIA-owned luxury store in London is reportedly forecasting a 45% drop in annual sales as the number of guests decreases. Many other stores have sought to renegotiate rents.
The outlook appears to be more promising for some emerging sectors such as biotechnology, which brought the pandemic to the forefront here.
“We have noticed a significant call for commitment to the life sciences. This ranges from offices to specialty laboratories and warehouses,” said Alistair Meadows, UK Money Markets Director at JLL.
(Real estate donations from the sovereign fund https://graphics.reuters.com/SWF-REALESTATE/oakpeogkmpr/chart.png)
RELIEF OPPORTUNITIES
According to CBRE, the U.S. labor market is expected to face its first year since 2009, when there will be more vacant area than leased.
Still, investors are experiencing some kind of recovery in some quarters. For example, The Canary Wharf Group, partly owned by QIA, unveiled plans for a new mixed-use primary development last month, adding an advertising space, in London’s monetary district.
And while hotels face massive challenges, occupancy rates are expected to recover near the pre-COVID grades, but by the end of 2021.
The Lithroughan Investment Authority has experimented with the operating expenses of some of its properties, adding some hotels in Africa owned by its subsidiary, President Ali Mahmoud Hassan Mohamed told Reuters.
But it remains linked to its genuine real estate portfolio, estimated at $6.6 billion when it was last devalued in 2012, because it has been able to repair its value, he said.
However, crises can provide opportunities.
As a result of the pandemic, some budget may look for bargains when troubled households arise.
The Hong Kong Monetary Authority, which manages a fund, told Reuters that it would “closely monitor market situations for adequate opportunities.”
And in one world, some academics say assets remain a forged bet for smart investors.
Barnes of UCL said the sovereign wealth budget may be “lighter for your feet” than some other institutional budget and more to adjust its behavior as cases change.
“Real estate is one of the most productive spaces to be, in a world of confusion,” he added. “But it’s about opting for the right property.”
(Information through Tom Arnold in London; Additional information through Alun John in Hong Kong, Gwladys Fouche in Oslo, Saeed Azhar in Dubai and Anshuman Daga in Singapore; Edited through Pravin Char)