15 Apr Residential real estate as a return driver
Published on 13.04.2021 on the website of Deutsche Pensions- & Investmentnachrichten (in German)
Three trends are making residential real estate funds unavoidable for institutional investors: they are focusing on residential real estate in Germany; they are taking advantage of the home office trend; and they are operating according to ESG principles.
Against a backdrop of increasing regulation, low interest rates, volatile stock markets and unpredictable risks, investors are looking for alternatives. Extraordinary times call for extraordinary measures – especially when the pressure to invest is high and room for maneuver is limited.
Residential real estate is the only alternative
For institutional investors, there is currently no alternative to investing in residential real estate or residential real estate funds. They are crisis-proof, offer stable returns and – with experienced asset managers – can even achieve considerable capital gains.
The targeted return levels are attractive – despite the crisis and the associated imponderables. Residential real estate funds are a real alternative and ensure that insurers, pension funds, foundations, banks and family offices remain “on target” with regard to their new investments.
Difficult choice in real estate funds
The number of real estate funds for institutional and semi-professional investors is growing all the time – but the choice is not easy. There is a particular demand for fund managers who adapt their strategy to the current situation and invest responsibly. The following three developments ensure that these strategies will gain even more in the future.
1. Residential real estate is stable and attractive
Investing with foresight means investing in asset classes that are successful in the long term. Many investment portfolios are dominated by commercial real estate, which has suffered greatly in the current crisis. Compared to investments in offices and retail, residential properties offer alternative development potential. They have performed very robustly over the past 12 months, address the steadily increasing demand for residential space in Germany, deliver value appreciation potential and offer risk reduction at portfolio level due to high stability and diversification.
2. Home office promotes decentralized regions with good infrastructure
Institutional investors are increasingly focusing on residential real estate in metropolitan areas as opposed to just the top 7 cities. More specifically, on residential real estate in high-growth regions with good infrastructure, which can benefit even more from the growing trend toward home offices. It can be assumed that demand for apartments with home office options will increase in and around metropolitan areas. With low multiples, solid returns can be expected in this segment and attractive value appreciation can be achieved through active asset management.
3. Reduction of sustainability risks
Due to the long-term investment perspective, proactive ESG risk management has also become a categorical imperative for real estate investments. Rising social and regulatory pressures are driving investors to increasingly consider sustainability risks in their portfolios. That is why they favor investment partners that share corporate responsibility and follow ESG principles. Institutional investors are closely examining whether ESG is already system-inherently rooted in the DNA of the fund provider. After all, this is the only way the manager can efficiently support fund investors in meeting their own responsibilities to their stakeholders – while generating solid returns.
Conclusion: Fund investors focus on German residential real estate
Even before Corona, institutional investors were betting on real estate funds that focus on residential properties in Germany, take advantage of the home office trend and operate according to ESG principles – also out of conviction. The pandemic has reinforced this trend.
About Nox Capital
The residential real estate specialists at Nox Capital combine value-enhancing asset management with ESG-compliant asset optimization along the entire value chain. In doing so, they invest in efficient buildings and promote social developments in a governance-compliant manner. The focus is on building a real estate portfolio in dynamically growing metropolitan areas with good transport links. For more information, please visit noxcapital.com.
UP2INVEST is an independent asset manager for alternative investment strategies based in Hamburg. Its clients are institutional and semi-professional investors seeking risk-adjusted investment performance in alternative assets. UP2INVEST combines limited asset access with risk-adjusted strategies and effective investment processes. For more information, visit UP2INVEST.com.
With M.M.Warburg & CO, UP2INVEST and Nox Capital have a strong distribution partner at their side. Founded in 1798, the bank is an independent private bank with around 670 employees at 10 locations. As a universal bank, it offers discerning private clients, corporate clients and institutional investors high-quality, individually tailored services in its core business areas of private banking, asset management and investment banking.