Contact

Menu

Article

Growing demand for specialty real estate

Trends such as digitalization and e-commerce are progressively changing the opportunities that are available for investing in real estate abroad – in particular in specialty real estate. Investors can engage in this trend through indirect real estate investments.

October 13, 2020

There are a number of advantages associated with indirect real estate investments. Investors can invest in properties with relatively low levels of capital while at the same time diversifying risk by diversifying their portfolio. For real estate funds – particularly investment foundations – in Switzerland, the dominant focus is on the residential sector, while stock corporations normally have a commercial focus. This is not going to change for the time being. The dominant sectors internationally are the office, residential, and retail sectors. However, there is an emerging trend toward specialty real estate, which is also expected to make its way to Switzerland. Specialty real estate is specifically tailored to certain uses. The trend is also being shaped by technological change – particularly the growth of digitalization and e-commerce. Consequently, companies operating in these sectors tend to be part of major real estate investment trusts (REITs).

Logistics space: online retail is the driving force

There are differing opinions today as to whether logistics properties still fall under specialty real estate. Nevertheless, the sector, which is benefiting strongly from the shift in consumer activity away from brick-and-mortar retail toward e-commerce, has been considered by investors worldwide as one of the most popular investments for some years now. It is structural change that is making investing in logistics real estate attractive – not just for REITs, but also for unlisted real estate funds and direct investors.

Major leading online retailers require three times more logistics space than traditional retailers who physically store many of their products on their business premises. The limited supply of modern logistics space in locations with favorable transport links harbors a high growth potential because e-commerce is still in its early stages. In 2019, online retail in consumer goods grew by 9%, to EUR 63 bn.1

The e-commerce industry’s share of global retail revenue has risen steadily in recent years. In 2015, it accounted for 7.4% of all retail revenue; by 2018, the figure had already risen to 11.8%, and it is still rising. By 2021, e-commerce is expected to make up 17.5% of global retail revenue.2 The COVID-19 pandemic is likely to accelerate this growth.

Specialty real estate is on-trend

In addition to logistics properties, investors are also increasingly discovering other specialty real estate. As a result of digitalization and the internet, radio communications towers and data centers, for example, are in high demand. Radio communications towers are benefiting from strong growth in the volume of data being transferred to cellular networks, and from the switch in transmission technology to the 5G standard. Data centers are expected to continue experiencing strong growth in demand for standardized and scalable cloud-based IT solutions. At 18.5%, radio communication towers represent the biggest sector on the US real estate equity market (Dow Jones US Real Estate Index, REITs share 95%) ahead of residential properties (13.4%) and data centers (11.9%) (see table “Distribution by investment sector”).

Distribution by investment sector as of the end of August 2020

US real estate equities

Source: Dow Jones US Real Estate Index

The real estate equity market can be seen as something of a pioneer. However, if we look at the transaction market for direct investments and allocations in unlisted real estate funds, we can see that the traditional sectors are still dominant.

Harrison Street recently published a report putting the transaction volumes in the senior housing and student housing sectors in the US at USD 11 bn and USD 4.8 bn, respectively (for the first eleven months of 2019). By comparison, the transaction volumes in the office and industry sectors in 2019 were around USD 138 bn and USD 112 bn, respectively. (Source: RCA)

Alternate text

Logistics property performance boosted by e-commerce growth

Source: MSCI IPD Census; Last data point: Q4 2019

Specialty real estate with a promising future

Get in touch

Contact us for information about investment opportunities and to learn how we can help you achieve your investment goals.

1 Industry report: Online commerce in 2019, IFH Köln. https://www.ifhkoeln.de/pressemitteilungen/details/ifh-koeln-prognostiziert-umsaetze-im-onlinehandel-steigen-2019-auf-68-milliarden-euro/.
2 Mobile commerce (M-commerce) in Switzerland, Europe, and globally (Aioma).

This material has been prepared by CREDIT SUISSE GROUP AG and/or its affiliates (“Credit Suisse”).
It is provided for informational and illustrative purposes only, does not constitute an advertisement, appraisal, investment research, research recommendations, investment recommendations or information recommending or suggesting an investment strategy, and it does not contain financial analysis. Moreover it does not constitute an invitation or an offer to the public or on a private basis to subscribe for or purchase products or services. Benchmarks, to the extent mentioned, are used solely for purposes of comparison. The information contained in this document has been provided as a general commentary only and does not constitute any form of personal recommendation, investment advice, legal, tax, accounting or other advice or recommendation or any other financial service. It does not take into account the investment objectives, financial situation or needs, or knowledge and experience of any persons. The information provided is not intended to constitute any kind of basis on which to make an investment, divestment or retention decision. Credit Suisse recommends that any person potentially interested in the elements described in this document shall seek to obtain relevant information and advice (including but not limited to risks) prior to taking any investment decision.
The information contained herein was provided as at the date of writing, and may no longer be up to date on the date on which the reader may receive or access the information. It may change at any time without notice and with no obligation to update.
To the extent that this material contains statements about future performance, such statements are forward looking and subject to a number of risks and uncertainties. It should be noted that historical returns, past performance and financial market scenarios are no reliable indicator of future performance. Significant losses are always possible.
This material is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or is located in, any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation, or which would subject Credit Suisse to any registration or licensing requirement within such jurisdiction.
The recipient is informed that a possible business connection may exist between a legal entity referenced in the present document and an entity part of Credit Suisse and that it may not be excluded that potential conflict of interests may result from such connection.
This document has been prepared from sources Credit Suisse believes to be reliable but does not guarantee its accuracy or completeness.
Credit Suisse may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to any company or issuer mentioned.
This document may provide the addresses of, or contain hyperlinks to, websites. Credit Suisse has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Credit Suisse’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this document or Credit Suisse’s website shall be at your own risk.
This document is intended only for the person to whom it is issued by Credit Suisse. It may not be reproduced either in whole, or in part, without Credit Suisse’s prior written permission.