Drivers of commercial real estate markets
Global Investment Insights
with Tony Crabb, National director, Research, Cushman and Wakefield
Tony is the National Director, Research at Cushman and Wakefield. In this role, his primary focus is on the performance of commercial property markets in Australia, particularly Melbourne. He is also charged with thought leadership at the company, as it pertains to commercial property. This is a very wide-ranging brief looking at everything from local, state and federal government policy, immigration, ageing, indebtedness, environmental issues, technology and the future of work, to name just a few. Each of these issues is having a profound impact on the prospects for returns in commercial property.
Tony predominantly focuses on office, retail and industrial property and conducts primary research as well as produces secondary research into these sectors for the use of occupiers, developers and investors alike.
He deals with the full spectrum of investors, from the major superannuation funds and REITs, to high-net-worth investors and family offices.
We spoke with Tony and he shared some of his investment insights in this exclusive profile interview.
What emerging trends, innovations and thematics excite you about the future of investing?
There is a saying that demographics is destiny, so immigration is the Australian attempt to circumvent the demographic destiny of Australia and the ageing of the population. This is a land use story, a jobs story, a youth story and, like all good immigration stories, one about real estate.
The environment is of ever-growing concern particularly the energy mix, land use, recycling, sustainability, extreme weather events and insurance. The impact on commercial real estate returns is not close to being fully understood.
Technology is having a monumental impact on commercial real estate as online retailing continues to build momentum. Agile working, preferred by millennials, has accelerated with the global pandemic and baby boomer bosses are adapting fast.
These are the headline grabbing technological events but there is more happening in the areas of sensors, building management systems, marketing, surveillance, transportation (think electric/driverless) and communication that are set to transform commercial property and commerce in general.
What do you see as the biggest challenge facing the institutional investor community currently and what changes would you advocate be implemented in pursuit of better investment outcomes?
The challenges coming from the environment and its impact on investment returns is the biggest challenge facing institutional investors in my opinion.
Everything from stranded assets to insurance and compensation, to regulatory and compliance changes, to extreme weather events and the destruction of assets. The liabilities appear to be mounting up with no clear accounting for them. Investing becomes more treacherous in the process. I would have thought that all investments ought to demonstrate an alignment with the UN Sustainable Development Goals (SDGs). About half of the SDGs are directly environmental in focus or address the sustainability of natural resources: poverty, health, food and agriculture, water and sanitation, human settlements, energy, climate change, sustainable consumption and production, oceans, and terrestrial ecosystems.
Far too many investments are unsustainable, not just in what they do, but in their tenure. That does not make them better investments. Where does the liability for environmental damage stop? What is the obligation of the investment manager in providing funding? In the future, the legal system may have something to say about this.
Where do you see greatest investment opportunities over the near term (three years)?
Geographically speaking, it is difficult to look past Australia when it comes to stability, transparency, governance, immigration and opportunities. Industrial property in Australia has been delivering high returns over the past five years and the cycle still has a number of years to run, so that is my top pick.
Having said that, asset class wise, global technology and global healthcare continue to offer the best prospects in my opinion.
The ageing of the western world ought to see more money being spent on healthcare, not just in the near to medium term, but over the next twenty years and beyond, as the baby boomers head into the end-of-life stage.
At the other end of the spectrum, technology is transforming the lives of everyone on the planet in almost every aspect of their lives and, despite increasing levels of regulation to come, the sector should continue to grow at the expense of the old (industrial) economy.
For investors, there are numerous ways to access returns from these sectors both in Australia, regionally and globally in equities, debt and commercial property. Personally, my preferred method is ETFs.
Can you share a personal or career specific story that has had a significant impact on you, which can serve as practical advice to others?
Insurance, insurance, insurance. I have invested through too many recessions, corrections, downturns, black-swan events and boom after boom after boom to not come to understand the value of insurance.
In my experience, people tend not to like insurance because it costs money and diminishes returns in a rising market. Yet, no matter how clever we are or how much foresight we think we have, over the long term, every market reverts to the mean and insurance becomes vitally important in insulating your portfolio from the impact of a market correction.
The best book I have read on the subject, by one of the most successful investors of our generation, is Antifragile by Nassim Nicholas Taleb. Following that I would say having the courage of your convictions and to follow them through is of immeasurable value. The movie, The Big Short, illustrates this in spades, as does the book named Blink: The Power of Thinking Without Thinking, by Malcolm Gladwell which I recently read and would highly recommend.
Disclaimer
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
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