With capital available and alternative structures for real estate trusts emerging, the market has strong growth potential.
Institutional investors have been using real estate investment trusts (REITs), funds and partnerships to invest in commercial real estate for decades. But retail investors are still a relatively untapped, source of capital for the commercial property market.
Two trends should drive growth of retail investment in the real estate market: income in retirement and pensions. Older generations seek income returns and want to preserve their capital in retirement. Meanwhile, the move from defined benefit to defined contribution pensions allows more choice and control when it comes to investment alternatives. With large amounts of capital available for investment in self-directed pension plans, there is a huge opportunity for growth in the REIT market.
While existing REITs are well positioned to capture this trend, the need for infrastructure investment is widely accepted across the globe, and new structures that mirror REITs in many ways are serving as a catalyst for growth in real estate and infrastructure public markets.
Although market conditions in some markets such as the US have not been overly conducive to REIT IPOs of late, globally there were 24 listings in 2018, with Japan and Saudi Arabia being prominent jurisdictions. We expect these developments to drive a steady stream of activity over the longer term. For companies or funds looking to expand their retail investor base, a publicly listed vehicle may complement other private fund offerings. Whether via cross-border structures or domestically aligned REITs, externally managed REIT structures provide an opportunity for fund managers with strong management teams, good track records and suitable back-office infrastructure to diversify their product offering, capture retail capital flows and potentially develop new partnerships to grow their business.
REITs are well positioned to capture value
The signals point to a huge opportunity for the REIT sector to further strengthen its position as a global investment vehicle. While alternative investment vehicles are available, stock exchange-listed REITs will likely remain the predominant choice for most retail investors.
Though the US remains the market leader, 38 countries now offer REITs or REIT legislation in some form. Many are at different stages of maturity but the potential for growth in each market is significant. With 33 million square feet of commercial office real estate, India’s newest REIT offering will likely trigger significant growth in that market and be a significant new entrant in global indices.
Countries with REIT legislation