Beyond Bulls & Bears


Quick Thoughts: Real Estate Disruptions Accelerate Active Opportunities

Real estate is no exception to COVID-19’s disruptions, accelerating trends, and shifting how we live, consume, and work. Onay Payne, Managing Director of Clarion Partners, LLC, and I recently discussed reshoring supply chains, evolving office space and housing needs, and our changing consumption preferences. All create active investment opportunities:

  • Real estate offers diversification benefits and a possible steady stream of income. Eight to 10% of many institutional investors’ portfolios are invested in real estate.1
  • Industrial warehouses and multifamily apartments have not experienced the same level of disruption as several other real estate sectors. Both industrial and multifamily apartment sectors continue to collect rents and renew leases. E-commerce demand has bolstered demand for warehouse space, and many multifamily apartment renters have likely benefitted from support from fiscal stimuli and unemployment insurance.
  • Affordable housing offers compelling investment and return opportunities, in our opinion, because affordable housing in high-cost cities remains drastically undersupplied.
  • Real estate in major metropolitan cities (“metros”) will likely grow in demand as life normalises, but they are experiencing exit-migration now with demand-drivers for “urban fringe” and prime suburban locations offering better quality of life and cost of living.
  • Some retail will continue to be more impacted, e.g., regional malls experiencing structural shifts in demand driven by increasing e-commerce. Parts of the retail sector that offer more inelastic forms of demand, e.g., grocery anchors and retail neighbourhood centers offering general services, will not be impacted as much as big-box retailers.
  • The pandemic’s impacts create a recovery for those who work remotely or service e-commerce. Jobs that have not been regained have disproportionately affected women and people of color. There’s a whole part of the US middle class whose needs are not being adequately addressed from a housing and retail perspective.

Now and post-pandemic, commercial real estate addresses the daily needs of the majority of our population. We believe for investors, characteristics such as durable income with appreciation, lack of correlation with common stocks, and leases indexed to inflation make commercial real estate useful for long-term investment strategies. For more, listen to “Quick Talks: Real Estate Disruptions Accelerate Active Opportunities.”

What Are the Risks?

All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. Investment in the commercial real estate sector, including in multifamily, involves special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector. Investments in infrastructure-related securities involve special risks, such as high interest costs, high leverage and increased susceptibility to adverse economic or regulatory developments affecting the sector. Actively managed strategies could experience losses if the investment manager’s judgement about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.

Diversification does not guarantee a profit or protect against a loss.

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1.  Source:, “Why Commercial Real Estate? Introducing retail investors to new diversification opportunities,” 24 December 2019.

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