“The Last 3 Decades Have Seen Real Estate Re-Establish and Re-Invent Itself.”

This is a guest article written by Mary Norlington and first appeared in our collaborative e-book “The Future of Property,” which features 17 thought leadership articles covering PropTech, property investment and housing. You can download your free copy here.

Mary Norlington has worked in the property investment industry for 35 years, focusing on innovating in the field of research and applied technology. He was Head of Global Research at Monty Samuels(now CBRE) in the 1990’s before leaving to set up a series of specialist businesses servicing the real estate fund management industry. He pioneered in early PropTech with businesses like Propex, which delivered the first agent to investor property investment data exchange and was acquired by CoStar in 2007. In 2011, he founded Indirex which holds the most comprehensive database of real estate funds around the world.


In 1990, I wrote a seminal paper for Monty Samuels(later to become CBRE) called the Case for Property. It took an in-depth look at the merits of real estate as an investment. Nearly 30 years on and the majority of the arguments set out then still hold; some with modification and some finessed with the experience gleaned from another three major property cycles. In this brief piece, I take a look at the state of play today to re-make the Case for Property 2020.

Property comes in all shapes and sizes; one person reading this is going to have a completely different context to someone else. Interestingly, however, many of the considerations are the same, whether you are considering the purchase of a half a billion-pound shopping centre or a modest investment in a crowdfunded residential building.

“Please don’t hold on to the theory that real estate prices never fall; they do. But “booms” are common too.”

Competitive returns are a must. Over the long run, commercial real estate in the UK has provided comparable returns to the stock market. For the most part, it is a cyclical market and investors should forget this at their peril. It has a proven capacity to “crash” and when sentiment turns, it can be universal. Please don’t hold on to the theory that real estate prices never fall; they do. But “booms” are common too. The sustained rise in residential values, particularly in London in the last 10 years, is one such example. Get your timing right and you can profit.

Professional investors appreciate that “calling the cycle” is no easy task and, more recently, they have seen the appeal of long-income assets; those with a close relationship to our national infrastructure. If well chosen for their ability to continually deliver income, they provide a good match for the pension liabilities that many professional investors are trying to deliver. These assets have been lumped in to a new use sector called “alternative” uses, which means principally student housing, hotels, later-living and most recently the new rented residential sector; Build to Rent. These sectors need to tie the real estate to an operating business offering high levels of service so that the tenant of old is now seen as today’s “customer”.

Such “alternatives” have the advantage of being driven by different considerations to the traditional commercial sectors, making them a good diversifier of risk. For instance, when the economy is weak, adversely impacting on commercial property values, there are fewer jobs on offer for youngsters leaving school or university, and so continuing in higher education is a good option. This drives demand for student housing and underpins values as we saw after the Global Financial Crisis (GFC). What then, of the traditional use sectors?

“Millennials now work in the knowledge economy and can operate from anywhere with appropriate digital access; the workplace must now offer attractions to get them there.”

In regards to offices, debates about the changing face of the workplace have been around for 30 years. However, it is now happening in earnest and the arrival of artificial intelligence is posing a threat to many mundane and repetitive jobs. Millennials now work in the knowledge economy and can operate from anywhere with appropriate digital access; the workplace must now offer attractions to get them there. The rising trend of well-being is also showing how productivity can be increased through clever design and servicing. At one end of the scale, the largest corporations are modelling their own buildings to perfectly fit their workforce. At the other end, the new era of modern workspace providers are making this type of serviced accommodation available to the smaller occupier. WeWork are now responsible for most take up in cities like New York. Considering this, make sure your investment has the flexibility to match current day requirements for technology and service.

“As more and more is delivered to home, logistics becomes ever more important and we are seeing increased demand at both ends with the mega-warehouses at critical transport nodes and the smaller urban-logistics inside towns and cities.”

In regards to retail and logistics, the technology revolution can be felt here more than anywhere else. The traditional High Street, for example, is under threat as buying moves online. But this changes the nature of the retail outlet to become a place to experience and ultimately collect purchases. As more and more is delivered to home, logistics becomes ever more important and we are seeing increased demand at both ends with the mega-warehouses at critical transport nodes and the smaller urban-logistics inside towns and cities.

In terms of the residential sector, the trend towards elective renting is clear for a significant part of the younger and, maybe surprisingly, the older population. But they demand service and will pay for it. Whilst we need to provide social housing on a wide scale, the government should not close off this source of new supply by interfering with rent controls. 100,000 new homes are being delivered right now through new Build to Rent schemes. Think of the benefits to be had from these large scale, professionally managed assets.

“In a very low interest world with the FTSE All Share dividend yield at 3.7% in September 2024, property investments can offer relatively high income returns.”

And the typology works for the old, too. Would you prefer to move out to the country or have a pad in town when you retire? The IoT (Internet of Things) can be used in your building to check your heart rate or insulin levels and alert a carer if necessary. The trend could give way to young and old generations in modern, mixed age group accommodation, paying for the services that suit them. So what of the future?

In a very low interest world with the FTSE All Share dividend yield at 3.7% in September 2024, property investments can offer relatively high income returns. This fact, in itself, has fuelled significant buying activity over the last 5 years. But set against this, there is a continuing trend to ever shorter leases. Occupiers can now regularly vote with their feet if a building doesn’t meet their current demands. Obsolescence has always been an issue, but now a lack of flexibility and under investment in buildings will quickly lead to vacant space and it will not deliver the income it promised.

“This goes hand in hand with the growth in the use of technology.”

Service is a theme that has already come up. This goes hand in hand with the growth in the use of technology. Successful buildings, from our places of work to places where we live, will embrace this trend. Rarely now can the property investor expect to buy a building let on a lease of 15 years to a single tenant which is just locked away in the portfolio.

As this essay has focussed on demand factors, let’s turn a thought to supply. It is key for performance to avoid investment in assets where the over-supply of competing space deflates the rents achieved or the actual letting of the building. Some of the markets worst experiences have come when gluts of space have developed and hit the market as demand fell away. The GFC hit banks very hard and lending criteria are now as demanding as many can remember on a prolonged basis. For investors, this has the advantage of limiting supply and stabilising rental levels. Equity investment is now a much more significant part of the market than it was pre-GFC.

At the start of the 80’s, institutions had more than 20% of their total assets in real estate. By 1990 this had fallen away to 10%. The last 3 decades have seen real estate re-establish and re-invent itself to form part of the wider Real Asset portfolio. Its appeal has broadened and continues to increase as innovative financing platforms come forward to open it up to the investor that was formerly locked out by the large lot sizes. The fundamentals remain. It goes without saying that location is key, but location alone is not enough if the building is not suitable for purpose. Focus on income generation now and in the future.

- Written by Mary Norlington
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