As social distancing becomes a norm worldwide, the impact within the real estate sector has been varied. While hotels and retail malls have suffered due to reduced travel, and public avoiding common spaces, warehouses and offices have been quick to bounce back post the initial dip.
Covid-19 has impacted the lives of billions of people worldwide. India has been hit particularly hard with the country currently adding the largest number of cases in the world daily and has the second largest number of confirmed cases.
It is in this uncertain environment, investors can look at the previous two recessions seen in 2000-01 and 2008-09, to derive insights from their impact and the recovery, which followed. One of the key insights has been that investing in periods of fear and uncertainty leads to oversized returns. Research published by Cambridge Associates, a US-based firm which studies global funds across asset classes, also shows that real estate funds launched in 2001 and 2009 have rewarded investors with the best returns since the turn of the century, giving an average annual return of 24 per cent and 18 per cent respectively, to their investors.
However, while it may be one of the best times to invest, the onus is on the investors to manage their risk. One important way to reduce risk is by investing in assets that are completed and tenanted. Similar strategies are being followed by some of the world’s largest real estates players like Blackstone, which is expected to purchase $1.7bn worth of office assets from Prestige, and Brookfield, which is expected to purchase $1.9bn worth of commercial space from RMZ. Investors should also look to purchase assets that have high-quality tenants who have done fit-outs and leases with longer lock-ins.
Retail investors, who till a few years back were not able to purchase a commercial asset due to high ticket size, can now invest via tech-based platforms or REITs. In fact, PropShare Capital, India’s largest tech-based real estate platform raised 80 crores in its first COVID-19 distressed opportunities offer, from retail and select institutional investors. Embassy Office Parks REIT, India’s first listed REIT, is also down 14 per cent since the beginning of the year.
In summary, investors should currently look at investing in commercial real estate, as returns have been highest when purchases have been made prudently at times of distress and fear.
Kunal Moktan
The author is the co-founder and chief investment officer at PropShare Capital, India's first and largest commercial property investment platform.