A towering global real estate opportunity

The pandemic has thrown a bowling ball through all of our working lives and put into question things we used to take for granted. The necessity of working in an office was, for generations, a given. No longer. As employees increasingly choose to WFH, Zoom (and platforms like it) has increasingly replaced shared rooms. Lockdowns might be over but CBD offices, once thronging, can still look a little bare. 

You might expect commercial real estate to be reeling. Well, it depends where you look. As David Kruth, portfolio manager, APN Real Estate Securities says, in the first of three videos with Livewire, the post-pandemic world has thrown up opportunities in the office sector, WFH or not.

So, we tend to look at the office sector in a few different ways -  more like a commodity office building, or a specialty office type building. 

We tend to like office buildings that are involved in medical offices and life sciences, and defence spending. These are areas where you have to show up every day to go to work, you don't have the availability to work from home, and the demand from the users of that space is quite robust and will continue to grow.

In this interview, Kruth also explains how our increasingly connected world is at the heart of a low-maintenance and lucrative global real estate opportunity that will continue to grow.

What are some of the global trends that provide opportunities in the real estate market?

I would say on the global market, particularly in the United States, what we're seeing is a very strong move on logistics real estate. 

Because of the post-pandemic (situation) and the demand necessary to satisfy all e-commerce and onshoring, we're seeing a 15% to20% increase in the amount of real estate that the companies need to satisfy that demand. So we're seeing extremely strong demand, and of course, rental rates are following that trend. 

We're also seeing the continued demand and increase in the use of technology, and there are technology real estate companies, particularly in data centres and cell phone or mobile towers, where the demand for that real estate continues to increase based on the increased use of data and mobile uses that we're seeing around the world.

How fast are these trends in data storage growing?

The CAGR increase that we've seen over 20-25 years is about a 30% increase per annum in the amount of data that flows through people's usage, and now with the onset of 5G in the United States, and coming here in a couple of years, plus 4G in places like India and Latin America which didn't have that, we're seeing an exponential increase in the amount of demand for product that goes through cell phones, and of course, e-commerce platforms. So the demand is going be accelerating over the next decade.

What opportunities are you seeing globally?

Our global real estate platform doesn't really invest in India-proper companies, Indian REITS, we don't invest in those right now.  However, one of our largest holdings is the largest global provider of data centres and cell towers in the world, and they both have a small percentage of their business in India, which is a big, growing market. We see exponential growth in India because you think about the billions of people, and there are no landlines, so they're just getting into the beginning of exponential growth of data usage on their phones.

Which real estate classes should be avoided?

That's a really interesting question. We try to pare it down and peel back the onion. There are a lot of sectors that have relative growth, like industrial and data, and the office sector. The office sector is one that's very controversial right now, with the work from home and the question about where people will be working over time. 

So we tend to look at the office sector in a few different ways. 

It's more like a commodity office building, or a specialty office type building. So we tend to like office buildings that are involved in medical offices and life sciences, and defence spending. These are areas where you have to show up every day to go to work, you don't have the availability to work from home, and the demand from the users of that space is quite robust and will continue to grow.

Do you have a particularly interesting stat about your sector?

During COVID there's this idea of COVID darlings, stocks and businesses and industries that have done extremely well off COVID because of a shift in consumer behaviour. So that's the background.

Two companies in the tech world fit that, one is Zoom and the other is Peloton. 

Both went extremely up and then have since gone extremely down because now we're in a post-COVID world and we don't know if we're going to use Zoom as much, which we probably will, and certainly people may or may not be using Peloton as much. 

But nonetheless, the stocks have fallen dramatically.

So the stat I like to use, and we have this on our presentation booklet, is that since the peak in October of 2020 to now, those stocks have fallen, or so the relative return of those stocks against the three sectors of rates that have benefited from COVID - logistics, multifamily and technology - there's a 90% positive delta in the real estate stocks against those, from the peak in 2020.

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