Resilient real estate sectors which could help to mitigate Covid-19 downside

Andrew Parsons, Resolution Capital

By Andrew Parsons (pictured), Portfolio Manager of the Nedgroup Investments Global Property Fund – In spite of the bounce back after the initial dip following the Covid-19 pandemic, global property still lags behind global equity markets. Despite this, portfolio building and structuring should not fundamentally change because of the pandemic. Instead, the focus should remain on the quality of the cash flow; while the pandemic clearly has an impact on certain aspects of the real estate market, the factors that make good property investments remain the same.

These include location, the quality and relevance of the real estate to the economy, robust tenant demand, limited supply, the quality of the management, and of course strong balance sheets with sufficient cash flow.

Below follow some notable examples of commercial real estate which have a track record of remaining buoyant and financially viable in the face of economic adversity, and which could perhaps provide respite and indeed opportunity for investors seeking to weather the coronavirus maelstrom.


Student housing

Student housing has typically performed well during economic downturns. People tend to invest more in educating themselves in the face of job scarcity. With more people applying for universities there is a surplus of demand for student accommodation. Those wondering if online learning and studying from home will eat into this demand should look at the recent student migration back to universities despite restrictions. 

Economic growth in Asia is also likely to continue to fuel the international student market, Asian student numbers look set to increase as does the quality of accommodation they are looking for. According to a report from Savills, during the financial crisis of 2009, the student housing sector grew from a low of USD0.8 billion to a high of USD7.2 billion by 2013.  

German residential 

The German economy is famously one of the most stable in the world and German property values have been growing steadily year on year since 2010. German property on the whole is well insulated from downturns. Population growth is outstripping new development, creating a supply vs demand imbalance. Germany accounts for a significant percentage of well-educated and skilled immigrants that are using the EU Blue card to migrate to Europe.  These influxes are well monied and looking for high-quality residential accommodation. German real estate is also very tightly regulated, ensuring a sustainable balance between lenders and borrowers. 

Post war built high rise accommodation in particular can be a prudent investment in times of market stress. These buildings typically yield very low rents and subsequently maintain long queues of tenants waiting for occupancy regardless of a recession. 


Continued investment into supply chain resilience has been significant throughout 2020. Ecommerce giant, Amazon increased its Real Estate square footage by 15 per cent in 2019. 2020 looks on track for a staggering square footage growth of 50 per cent, most of this coming from warehouses, sort centres and delivery stations. 

The rise of e-commerce vs traditional retail is driving an increasing demand for distribution centres. This has been accelerated by Covid, the sector has become more concentrated and created a moat of capability that will keep all but the most innovative newcomers at bay. According to David Egan head of industrial research, Americas, at CBRE every $1bn in e-commerce sales will equate around 1.25 million square feet of distribution space. This huge demand for distribution space is likely to remain extant regardless of a market slowdown. 


Outside of e-commerce the retail sector in aggregate has been hammered by Covid, even seemingly stalwart companies like John Lewis have started to feel the strain. The UK in particular has felt severe retail depression when compared against the US, for example. There are, however, some retail sub-sectors that have performed. Non-discretionary purchases like groceries and pharmaceuticals among other essential, low price point services have remained relatively stable during Covid due to panic buying and increases in home cooking, these retail types also typically do well during recessions. 

Data centres and cell towers:

Digitalisation has been another trend accelerated by Covid induced lockdowns. In April 2020 Zoom was hosting 300 million daily meetings, an increase of 290mn when compared to December 2019. Habits formed over this period of change are likely to stick in some degree. According to a recent report by Accenture 35 per cent of people they surveyed planned to increase home working in the future and 48 per cent of the surveyed group (which included 7,872 consumers in 18 markets around the globe) that had never worked from home previously, now plan to spend more time working from home in the future. 

The net effect is more people spending more time online creating a growing demand for more data. Infrastructure that helps to meet this need, such as data centres and cell towers, are safe havens for recession wary investors. 


Healthcare is viewed as an essential service by consumers, in hard times one is still unlikely to skimp on family healthcare. Further, in many countries healthcare is subsidised or paid for by the state – for example, the NHS makes UK healthcare a particularly resilient sector to recessions. Finally, Covid has clearly highlighted the importance of healthcare, raising its social profile and driving results for investors that were savvy enough to buy into clinics and medical office buildings. 


Some parts of the office segment have avoided the effects of Covid such as life science office buildings but on the whole the supply has far outstripped the demand for office space. The working from home phenomenon has landed the office sector as the most reduced segment of the Real Estate sector this year. 

Despite this, there is a future for the office. For the time being more people will continue to work from home, but young professionals are bound to continue to drive some demand post pandemic. While the future of office life is not completely dead, recessions fundamentally drive unemployment making investments in this space undesirable in the face of global slowdowns. 

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