The evolving landscape of commercial real estate markets post-Covid, changes in cashflow and risk profiles, and the implications for insurance portfolios were all on the agenda for the latest Insurance Investment Exchange virtual roundtable.
Real estate is a key asset class featuring widely in insurance portfolios but the Covid-19 pandemic has created new winners and losers, potentially permanently reshaping the landscape of commercial real estate markets. As we emerge from the darkest days and toughest restrictions of the pandemic this was a timely review of that landscape, led by experts from the combined PIMCO and Allianz Real Estate platform in London and New York.
It was clear from polling the views of the CIOs (chief investment officers) joining the online event that the biggest uncertainly is the future of offices, with no-one willing to increase their exposure. PIMCO’s Tom Collier said he was not surprised by this assessment: “Offices are the big unknown. There is a lot of uncertainty around”.
He agreed that poor quality offices in the wrong location and which do not lend themselves to collaborative working and promoting employee well-being will struggle but that was balanced by high quality, city centre offices with strong ESG (environmental, social and governance) credentials offering strong investment opportunities.
Ravi Anand said that CIOs had no need to make hurried decisions as offices have held well in portfolios because of the long-term leases that were prevalent in the sector. This has helped protect cash-flows.
If offices were not an immediate cause for concern, retail spaces need to be re-assessed. The pandemic has left retail landlords struggling as tenants demand rent relief or have defaulted. With the growth of e-commerce there was an over-supply of retail space in the United States and in Europe.
Hotels are another stressed commercial property asset as revenue per room has not recovered. The pick-up in leisure travel and demand for accommodation has not yet been matched by a parallel uplift in demand from the higher paying business sector.
The emerging winners are the logistics sector, which is now a much larger part of the core property universe, data warehouses and life science assets bolstered by the pandemic. High quality student accommodation, especially in the US, should be attractive too. These trends are being underpinned by the emergence of much stronger theme-based strategies among major investors.
The PIMCO team
- Tom Collier - Executive Vice President, Product Strategist - Alternatives, London
- Ravi Anand - Executive Vice President, Portfolio Manager - Private CRE, New York
- Alpita Maheshwari - Vice President, Account Manager (UK and Ireland)
- The next Insurance Investment Exchange roundtable will be a face-to-face event on Wednesday 1 December, hosted by M&G. It will explore the latest trends and thinking around building resilient and diversified private assets portfolios for insurers.
- Further details
Reporting by Contributing Editor David Worsfold