Investment Strategy Annual 2021: Mid-Year Update

The great re-opening gains momentum

The pandemic gave us time to reconsider our lives, our work, our relationships with families, friends, neighbors, and co-workers. It also fundamentally changed how we interact with technology and with our surroundings – in both the natural and built environments. For real estate investors, the pandemic rocked the foundation of the asset class. Yet, as our Mid-Year Update reveals, real estate has generally survived intact, and many markets are thriving in novel ways. Finally, the pandemic raised awareness for the possibilities for creating societal benefits through investment in low-carbon assets and in healthy, diverse communities.

In the second chapter of the Mid-Year Update, we review the huge sectoral shifts we first reported in “The Future of…” series six months ago. Then, we revise and update this analysis with insights from the last several months of “The Great Re-opening” and add our forward-looking views for the rest of the year and beyond.

In the third chapter, we trace how “The Great Re-opening” continues to play out in each region. Overall, the re-emergence of leasing activity, and a sharp upturn in capital market transactions have brought a strong sense of optimism to real estate investors at the midway point in 2021. Values are reaching new highs in the favored sectors. Transaction activity in out-of-favor sectors is beginning to show solid support for values reasonably close to pre-pandemic levels, wherever asset-level and market occupancy have both held up. In fact, the biggest challenge for deploying capital is that so much other money is trying to find a home in real estate – in effect picking up the plot from the pre-pandemic years. The fourth chapter summarizes the asset-class perspective and looks at the question of how real estate performs in a rising inflation or rising interest rate environment, even though inflationary conditions are far from universal in the markets where we are most active. Finally, we highlight the importance of real-time data analytics to track the re-opening process around the world.

Last December, we foresaw surging demand for warehouse and residential space, a record amount of capital unleashed, and an acceleration of investor interest in alternative sectors once COVID was contained. All three of these predicted trends have kicked into high gear, especially in countries where vaccine deployment or “return to office” levels have been high.

Nevertheless, just as some people survived the pandemic, but continue to experience lingering symptoms, parts of the real estate universe will continue to suffer from long-COVID. For every property sector or specific location with robust demand, there is another sector facing serious headwinds and existential questions. The pandemic accelerated technology trends in virtually every aspect of our lives—remote working, virtual meetings, tele-health, distance learning, and the deepening of e-commerce. Finally, the pandemic accelerated the adoption of ESG policies by investors and by occupiers of real estate, a move that has many implications for how LaSalle invests in and operates its real estate holdings going forward.