Is it time to get active with global listed real estate?

Against this backdrop, we believe an active approach is vital for investors looking to unlock the full potential of listed real estate.

Future performance drivers

We think mega-themes like supply chain reconfiguration, shifting demographics, and digitalisation will positively affect global real estate investment demand over the longer term.

These themes impact our views on the future outlook for a range of real estate sectors, as you can see in the graphic below.

For example, we expect categories like healthcare, student housing and senior living to exhibit long-term growth and resilience, while secondary quality offices will continue to experience long-term structural challenges:

Long-term thematic pressures and cyclical timing

Source: Aberdeen, October 2024. This visual is not based on specific data and only represents our views on sector trends from a thematic perspective. It should not constitute specific allocation advice in isolation.

A forward-looking approach

We believe that by investing where real estate will be, not where it has been, we can help investors build wealth over the long term. Taking a forward-looking approach (as demonstrated in this graphic) and investing in the real estate of the future allows active managers to allocate capital to the most promising segments of the market before these trends become fully recognised and reflected in asset prices.

Our tried-and-tested proprietary Global HouseView tool aims to spot outperforming real estate segments of the future. Meanwhile, our Global Real Estate Securities team has the experience and expertise to identify and invest in companies ideally positioned to benefit from these advancing trends.

Navigating dispersion of returns

Another big benefit to active investing relates to the fact that there’s a significant distribution of returns between the best and worst-performing global listed real estate sectors year-on-year.

This dispersion can be driven by various factors, including geographic location, asset quality, management efficiency, and sector-specific dynamics.

Active management enables investors to navigate this complex landscape more effectively. Active investors conduct thorough research and analysis to identify and invest in the higher-performing sectors and subsectors while seeking to avoid those areas of the market expected to face continued headwinds.

This selective approach has the potential to enhance portfolio returns and reduce risk compared to passive strategies that simply track a broad market index.

Real estate – a diverse market

Unlike other equity sectors, the listed real estate market encompasses a range of property types. For example, office buildings, retail spaces, industrial properties, residential complexes, and more recently, specialist sectors such as data centres and healthcare facilities.

The listed real estate market consists of 17 sub-sectors, each of which responds differently to economic cycles, interest rate movements, and other external supply and demand factors.

By leveraging their deep understanding of these dynamics, active managers build diversified portfolios that are resilient across different market conditions. With the benefit of research and expertise, it’s possible to optimise exposure to various real estate sub-sectors based on their growth prospects and risk profiles.

ESG Integration

Environmental, social, and governance (ESG) factors are increasingly important in investment decision-making. This is especially true in the real estate sector, where sustainability and social responsibility can significantly affect asset values and long-term viability.

Active management allows for a nuanced and forward-looking assessment of ESG factors. This enables investors to support companies that lead in sustainability practices, have strong governance structures, and contribute positively to society.

By prioritising ESG integration, active managers can identify companies that are not only mitigating risks but are also poised for growth due to their responsible business practices.

Final thoughts….

We believe active management in global listed real estate securities offers a strategic approach that leverages expertise, research, and a forward-looking perspective to navigate the complexities of the real estate market.

By focusing on structural growth trends, managing the dispersion of returns, understanding the diverse nature of the market, and integrating ESG factors, active managers can potentially deliver superior risk-adjusted returns for investors.