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23 May 2022 00h00
Source: Banco Carregosa

Property Investment Funds: a turning point

Property Investment Funds: a turning point

E-commerce, climate change, big data, affordable housing, quality of life. These trends will shape property investment in the coming years. Find out how to adapt.
 


Why invest in property

 

Despite economic and political uncertainties, the real estate sector is growing. In 2020 alone, more US $ 280 billion was invested, worldwide, in real estate transactions, a record amount and much higher than what is invested in financial instruments, for example.
 
AMOUNT INVESTED WORLDWIDE IN DIFFERENT ASSET CLASSES (2020)
 

 


Source: Savills World Research 

 
Whichever metric is used, real estate as an asset class has grown by leaps and bounds in recent decades. In part, this growth has been fuelled by the drive for diversification, which many investors seek in real estate. And Portugal is no exception to the growth trend, despite the impact felt during 2020 due to the pandemic. 
 
But in a macroeconomic context of climate change, rapid urbanisation, and accelerating e-commerce growth, property investment is facing an unprecedented pace of transformation. Find out what's changing.
 
 

What's changing in property investment

 
Teleworking, technology, demographics, big data, climate change, e-commerce, and digitalisation – these are just some of the factors that are transforming how and where people live, work and enjoy themselves. 
 
Property investors must now answer more complex questions: which cities will be attractive to a population seeking quality of life at an affordable cost? How will commercial real estate be affected by telecommuting and the drop in car ownership? Will climate change devalue waterfront properties or spur innovations that allow us to have a different relationship with marine environments? 
 
Learn about the key trends that will shape the future of property investment. 
 

Localisation is not what it used to be

  
Prices in Portugal's main urban centres are driving families and investors to look for alternatives. In Lisbon it takes 45 years of average salary to buy a 100 sq.m house. In Coimbra, on the other hand, this figure is cut by half.
 
However, cost is not the only concern. The lack of accessibility in some urban areas is making people change their preferences, so is the search for greater quality of life in cities with lower population density, a factor compounded by the pandemic. 
 
The most attractive growth prospects are often found in areas with strong employment and low prices, an irresistible combination for young families and businesses, whose presence contributes to a solid and more resilient base for growth. 
 

E-commerce is transforming the type of most sought-properties 


The internet and a plethora of delivery options mean people are less tied to places to work, shop or access entertainment.
 
These changes will affect demand for a variety of commercial properties, including restaurants and shops. In the same way that we have seen the shopping centre market fall and the warehouse market soar, so too may the demand for restaurant space give way to food preparation areas for delivery (just look at Uber founder Travis Kalanick's new venture of "dark kitchens"). 
 
Although there remains a high degree of uncertainty about which transformations will succeed and which are transient, most analysts agree that the growth of e-commerce in Portugal will continue to shape the demand for commercial real estate in the coming years. 
 

Greater environmental awareness 

 

Rising sea levels and the increased frequency of unusual natural phenomena are no longer seen as hypothetical problems, but as real challenges for millions of homeowners and investors.
 
Equipping properties with eco-friendly materials and technologies, for example, is one way to increase the value proposition for owners. The search for sustainable, water- and energy-efficient solutions has already led to the emergence of prefabricated houses and passive housing, with neutral or even positive emissions. Even so, many real estate investors now think twice think before committing to an investment in the affected coastal area - something that in Portugal has a huge impact. 
 

Increased technology support  


From sensors that detect and adjust room temperature to projects designed through AI (artificial intelligence), to drones that monitor faults in buildings, technology is truly useful in the real estate sector. These are some of the trends:
 
• Smart homes: investors will continue to push for a new wave of smarter home devices that will improve security, utility spending and environmental sustainability. 
 
• Automation: automation of processes and tasks will be increasingly popular in the future of real estate. It is expected that the automation of processes such as maintenance, negotiation and finding new tenants will, for example, enable easier remote investment management, in several different cities or countries.
 
• Construction: several startups are already transforming the construction industry, with new materials, production technology, 3D printing and modular buildings. 
 
These technologies aim at improving energy efficiency, reducing operational expenditure and improving the quality of decision-making.  
 

More and more data  

 

Conventional analytical methods and data sources make it difficult to build a robust business case for a new property investment. To do so requires examining tens of millions of records to identify clear patterns, with few supporting tools. By the time an investor has finished collecting and processing what is needed to define a course of action, the best opportunities are long gone.
 
As a result, new sources are becoming increasingly relevant. Resident surveys, mobile phone signal patterns and local restaurant reviews, for example, are helping to identify "hyperlocal" patterns – granular trends at neighbourhood level, rather than city level. Macroeconomic and demographic indicators, such as an area's crime rate or median age, also inform long-term market forecasts.
 
New machine learning algorithms are bringing all this data together through analytics that make it easier to aggregate and interpret such disparate data sources. Multiple sources of information can thus be linked together before preparing the data for analysis.  
 
But data is not a crystal ball. In most cases, they should only support investment hypotheses, which then need to be interpreted in the light of the experience that only a professional can give.  
 
 

Conclusion: a turning point for property investment

 
Property investment management is an industry that is notoriously resistant to change. However, macroeconomic conditions in recent years have accelerated the transformation. 
 
E-commerce, big data, building technology, demand for affordable housing, and greater environmental awareness are some of the trends that are transforming property investment.
 
Contact our team of experts to find out how to invest in this asset class.