For financial advisers and professional investors only – not for distribution to retail investors.
April 26, 2024
By James Maydew
In real estate, investors need to think more broadly than the traditional sectors of office buildings and shopping centres. Digital infrastructure and industrial property are one way to update the portfolio.
The world of real estate has changed dramatically over the last 15 years, according to James Maydew, Global Head of Listed Real Estate at Macquarie Asset Management, and investors need to change with it. In much the same way that streaming disintermediated the video rental store, data centres and telecommunications towers are disrupting traditional real estate assets.
And investors who haven’t been paying attention might find they still own something as endangered as that humble purveyor of VHS tapes.
“If you haven’t been thinking about evolving your real estate portfolio, the reality is that you might still own Blockbuster,” Maydew told The Inside Network’s Equities and Growth Symposium. “There are real alternatives out there, and in Australia we need to break the cycle of thinking about office buildings and shopping centres as being the entirety of real estate. They’re simply not.”
Ecommerce has “completely broken the cycle” of retailers paying away a significant chunk of their sales as rents to shopping centre landlords; office buildings are being emptied by new employment models like working from home. Both of those trends lead back to data centres and information technology infrastructure – and that’s without adding in the “digital revolution” of generative AI.
“The genie is out of the bottle… When you speak to a data centre landlord, or speak to a company that is exploring what they can do in the generative AI space, they simply don’t know how much demand they’re going to need,” Maydew said. And so there is a race to pull forward demand, pull forward energy to make sure that they have optionality in two, three years’ time. That is driving the data centre market considerably.”
But while ecommerce continues to “grind higher”, supply chain reconfiguration in the wake of the pandemic is driving a renewed need for industrial buildings.
“Gone are the days of expecting one to two per cent rental growth, which we saw over the past 30 years. We’re now in a world where you’ll see rental growth typically in the double digits,” Maydew said. “This is the opportunity that exists today. Supply chain reconfiguration and nearshoring and onshoring are real trends.”
Meanwhile, the “silver tsunami” of demographic change is highlighting the pressing need for more senior living facilities, construction of which lagged during Covid.
“The reality is that we simply do not have enough real estate and infrastructure to cater for this extraordinary need,” Maydew said. “The 80-year plus cohort is growing at the fastest rate we’ve ever seen, and we have an extraordinary pinch point of demand at a time when we see pretty much no supply.”
“The average occupancy coming through Covid was down in the low to mid 80s for a senior housing community. We’re now working our way towards the high 80s. The average historical high has been 91.5 per cent, and we’re going to blast through that – so what we have here is sustainably outsized income growth moving forward.”
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