Global Sovereign Funds Rethink Real Estate Investing

The COVID-19 pandemic has forced sovereign wealth funds to think the previously unthinkable. With prime office blocks lying empty around the world, hotels half-vacant and retailers struggling to stay afloat, the funds are retreating from many of the real estate investments that have long been a mainstay of their strategies. Sovereign wealth funds (SWFs) invested US$4.4 billion in the sector in the first seven months of 2020, 65 percent down from the same period a year ago, according to previously unpublished data provided to Reuters by Global SWF, an industry data specialist. The nature of property investments is also shifting, with funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic, while cutting back on deals for offices and retail buildings. Such shifts in behavior can have seismic effects on the global real estate market, given such funds are among the largest investors in property and have interests worth hundreds of billions of dollars in total. Three sovereign funds sit within the top 10 largest real estate investors, according to market specialists IPE Real Assets. Funds are nursing hits to their existing property portfolios stemming from the introduction of lockdowns and social-distancing restrictions. While other parts of their portfolio, such as stocks and bonds, have rebounded from March’s trough, a real-estate recovery is less assured. The value of property assets of some funds has fallen in 2020, with those experiencing the biggest drops including Singapore’s Temasek Holdings and GIC, Abu Dhabi Investment Authority (ADIA) and Qatar Investment Authority (QIA), according to data compiled by industry tracker Preqin.