The global listed property market isn’t where it used to be.
James Maydew, AMP Capital head of global listed real estate, said secular trends are pushing the property sector beyond the traditional boundaries of retail, office and industrial
Just over the last 18 months, for instance, a new sub-asset class has opened up in the real estate investment trust (REIT) neighbourhood to play the insatiable millennial appetite for home-delivered fresh food.
Maydew said the fresh food logistics space was booming as landlords cater to the rising demand for perishable goods storage.
“Essentially, they’re big refrigerators,” he said. “And they should be recessionary-proof – everyone needs to eat and drink, even in a recession, so the underlying storage demand won’t change.”
But the e-commerce revolution is delivering many more opportunities for REIT investors aside from keeping avocados at the perfect temp for millennials.
The generational shift to online shopping was creating investment options in the entire storage and supply chain logistics property market.
“Consumers are changing how they shop and engage with brands – that’s a structural shift that is cascading around the world,” Maydew said.
Modern warehousing facilities located close to the cities they service offered property investors a profitable way to participate in the e-commerce trend.
While slightly behind the curve, the NZ market was showing signs of “catch up” in providing properties targeting the online economy.
“We’re excited about some of the opportunities in NZ,” he said.
In the US, the “Amazonification” of commerce – along with the data explosion – has totally transformed the REIT market in just five years.
Maydew said five years ago retail REITs led the market in the US but demand for data and logistic centres had since pushed the industrial sector to the top of the pile.
Elsewhere, demographic trends – including the aging population and maturing millennial tastes – are changing residential housing habits that investors can tap into.
Retiring US babyboomers, for example, are flooding from the cooler northern states to ‘manufactured housing’ estates – or high-end trailer parks – down south, seeking sun, entertainment and companionship with people of similar age and interests.
Maydew said demand for such ‘age-restricted’ retirement housing was rocketing while supply has been constrained by local development restrictions.
At the same time, the ‘single family’ rental housing market in out-of-the-way cities like Austin, Texas, was rising as younger cohorts sought affordable lifestyles away from the increasingly expensive marquee metropolises.
“As millennials grow up they’re not too dissimilar to earlier generations,” he said. “They want space to raise their families in.”
The REIT sector as a whole was in much better health than just prior to the global financial crisis when sky-high leverage and an overweight to blue-sky development projects triggered a collapse.
He said REITs today have significantly cut leverage, focused on core rent-gathering activities and offered greater diversity than a decade ago.
“REITs are providing the defensive growth that investors look for in the asset class,” Maydew said. “Correlations with the broader equity market have also come down so you’re also getting the portfolio diversification from property that you’d expect.”
Returns have also been solid over the last couple of years, he said. The AMP Capital global listed property fund was up 11.6 per cent over the 12 months to May 30, and 10 per cent for the two-year period – about 2.5 per cent above benchmark.
The US REIT market, which represents 55 per cent of the benchmark, is still the largest and most diverse in the world but Maydew said the listed property industry was increasingly global.
For example, within the last couple of months the Indian stock market listed a REIT for the first time, exciting the interest of property investors seeking exposure to the world’s second-most populous country. Both South Korea and the Philippines have also recently made forays into REIT-land.
“These countries have low consumer debt, young populations and [property] is significantly cheaper than developed markets,” he said.
For the time-being, though, AMP Capital has a limited direct allocation to emerging market REITS but “in two to three years’ time I expect we will have more”, Maydew said.