NEW(ER) TECH AND BUSINESS MODELS
Increasingly, investors are diversifying their portfolios by investing in
newer and emerging business models and thematic categories,
according to Deloitte. For example, the firm found that more than
half of the investors it surveyed reported plans to invest in, or
increase investment in, properties with flexible leases, and 44% plan
to do so for flexible spaces.
In general, survey respondents specializing in mixed-use and non-traditional properties plan to increase their capital commitment by a
higher percentage than those focused on traditional properties.
Specifically, in terms of non-traditional properties, those surveyed are
likely to increase investments in data centers and health care, including senior housing facilities.
This approach to nontraditional properties does come with
additional long-term considerations, according to Lee Menifee,
head of Americas investment research at PGIM Real Estate. New
technologies and their disruptive effect could also influence, albeit
subtly, the value of properties.
“Historically we’ve prioritized and paid more for locations that
gave us convenience,” such as apartments that offered shorter
commute times or offices located close to amenities such as res-
taurants and retail. Now the distance to a physical workplace is
growing less important, Menifee notes, which could eventually
have an impact on valuations.
This effect will be a subtle one and he says these changes will be
more evolutionary than revolutionary. “There will continue to be a
premium for locations near transit,” he relates. “You’ve got infill
neighborhoods that develop up around transit infrastructure and
the value of those neighborhoods is in more than just their access
to transit infrastructure—there’s also the amenities they offer and
the critical mass of people they house.”
In short, he says, don’t bet against density.
Longer term, though, the picture gets murkier as such technologies as self-driving cars enter the mainstream. Even here,
the impact is not necessarily a straightforward one. The advent
of self-driving cars means that people could be living further
away from their places of work, which could devalue suburban
office buildings. Along that vein, he adds, the strong trend
toward amenities plays a huge role—the lack thereof is devaluing a number of suburban offices.