The US office real estate market has received a US$1 billion boost, supported by Singaporean sovereign wealth fund GIC and Canada’s biggest public pension fund CPP Investments, alongside property developer Boston Properties. GIC has allocated US$500 million to the program, while CPP and Boston Properties have each allocated US$250 million..
The new platform appears to be part of a renewed interest in US real estate among state-owned investors, who have committed US$9.1 billion so far this year to the sector – 18% more than the full-year total for 2020, according to Global SWF transaction data.
The decision to invest in office properties in Boston, Los Angeles, New York, San Francisco, Seattle and Washington indicates a renewed confidence in office properties. Yet, direct investment in individual properties has dried up, in favour of co-investment platforms. Both GIC and CPP Investments have favoured such platforms in North America in recent months with the former backing a US$1.2 billion retail real estate platform and the latter a 70% stake in a C$500 million platform for residential rental properties and a 90% stake in a US$389 million multi-family venture with Greystar.
The uptick in investment comes as the US commercial real estate market starts its recovery, although retail and office space are likely to lag. Underlying fundamentals support growth over the medium-term. As long-term investors, SOIs are looking to the revival of consumer and business confidence leading to a boost in these segments, particularly the industrial sector which is seeing high levels of development and investment activity.
The increasing tendency of SOIs to invest in co-investment platforms and real estate funds suggests they are moving away from prestige and prime real estate assets and towards more diverse portfolios, with a view to flexibility to earn yield. Despite the heightened focus on venture capital, real estate remains a significant asset class in SOI portfolios and investors are rapidly evolving their strategies in response to the long-term effects of the pandemic.
Like other sectors, investment in real estate is seeing some fundamental shifts in response to the pandemic. The office market was hard hit by the pandemic, but a return to growth is likely to be accompanied by demand for modern, efficient, highly amenitized space with flexible space and lease structures. Real estate investment is also shifting towards the suburbs, following the movement of the skilled professional workforce who moved further from central business districts during the pandemic. As such, SOI-backed platforms are likely to be looking at non-prime real estate.