If you look at the dismal real estate investment volumes that are coming out for the second quarter of 2020, you could be forgiven for wondering, ‘Is investing in real estate a mistake,’ writes Roger Clarke.
In fairness, the numbers are grim. Investment in UK commercial property totalled £2.90bn, a 68% fall compared to Q2 2019, in the slowest quarter on record, according to Savills. But if someone asked me if this is the right time to invest in real estate, my answer would be simple: ‘yes, absolutely’. Just look in the right place – and the right place is the public market where fundraising is thriving.
While investment volumes were down nearly three-quarters in Q2, fundraising by UK listed property companies was up 83% to £2.1bn in the same period.
Let’s put that another way: Q2 accounted for nearly 40% of all fundraising on the listed property market since the start of 2019. Moreover, there are signs that fundraising momentum continues with Warehouse REIT announcing that it has raised £153m in new equity, bringing the total raised by industrial and logistics firms to more than £1bn since March. These businesses have had little trouble finding investors that believe in their long-term viability, confirming something we have suspected and expected since the start of the crisis.
The companies that have raised funds have largely been sector-specific ones, whether that’s Segro raising £673m in June for logistics or Assura raising £185m in April for GP surgeries. Unlike some of the mixed-use portfolios that have struggled in recent months, these businesses are able to give investors a clearer picture of the outlook for their sector. In the case of Segro or Assura, the outlook remains positive, and the long-term approach they’re taking to their businesses overrides any short-term economic hurdles. In short, transparency leads to confidence, and confidence leads to investment.
And the opposite is true, as well. Without transparency or clarity, investors simply do not know how much an asset is worth, which has inevitably led to a slump in transactions. It was only a few months ago when open-ended funds closed to redemptions because there was no certainty over the value of their portfolios.
With a strong track record of accurate price discovery, public markets offer a level of confidence that can attract investors in otherwise tumultuous circumstances.
Of course, there is more the industry can do for transparency, to give investors all the data they need to make informed decisions. It’s something we’re committed to at IPSX. When an asset is listed on the stock exchange, investors will have a clear understanding of its income streams and the strength of their covenants. Without that data, investors would be left in the dark and have little reason to invest even if the asset were secure and income-producing. With that data, they can invest with confidence.
That contrast might be particularly pronounced during a crisis, but the values that have made the listed market a success amid miserable investment volumes should be the values that guide us far beyond this economic slump. If there’s one lesson we can learn from the Q2 figures coming out, it’s the value of transparency.
Roger Clarke is managing director and head of capital markets at IPSX