Residential, commercial, and other types of real estate properties each offer interesting and specific advantages. Getting to know these advantages is the first step in establishing an investment plan. 

Residential real estate – rising rents attract investors 

Residential real estate is the most common and familiar asset class for many first-time investors. In terms of market value, residential real estate (including owner-occupied properties) dominates, with an 81 per cent share of total real estate value compared to 19 per cent for commercial real estate. Economic factors, such as interest rates and inflation, influence supply and demand in the residential market. Higher interest rates reduce the affordability to buy and shift the demand more to the rental sector. This effect is further compounded by higher inflation, which increases construction costs and depresses construction activity in the residential sector. This, in turn, translates into higher rents. 

However, inflation is often offset by rental growth in many markets. Hence, the multi-family house sector has become a popular investment destination to cover shortages and benefit from rising rents with inflation protection included. Multi-family properties were the most favoured mainstream property type among global investors in 2023, with 30 per cent stating that they were planning to invest. Assisted living, student housing, affordable housing, or co-living investments also offer attractive alternatives to explore. Co-living and assisted living investments are, in essence, commercial investments as they are usually operated by a commercial company such as a hotel or care operator. 

Commercial real estate comprises property that is used for business activities rather than for living spaces. It can include everything from offices to shopping malls. 

Offices 

The office real estate landscape is experiencing a transformation. The Covid-19 pandemic has led a significant portion of the population to learn how to work from home, though even with a shift to remote or hybrid working, not all jobs lend themselves to this model. Even if they do, the need for social interaction and collaboration means demand for office space is likely to remain, albeit possibly in a different format. We expect global companies will still need headquarters in central business locations for representation and collaboration purposes but will not need an office presence in every city or country. The prognosis for the office real estate market remains open. Unused or outdated office space offers the potential for transformation, for example into residential formats if zoning laws allow such redevelopments.

Retail

High-street retail formats still enjoy healthy demand, especially from luxury companies and omnichannel concepts by retailers. We are witnessing that pure online players are opening physical stores, with consumers benefiting from online purchases and pick-up or returns in stores. Traditional shopping and department stores are in a constant transformation process, which has accelerated after the pandemic. Retail has learnt to adapt, as the pressure from e-commerce had already started long before the pandemic. So, it has an advantage over the office sector, where the transformation only started during the pandemic.

Industrial and logistics space

Supply chains are being reshaped due to a combination of macroeconomic changes, the reshaping of international trade, and geopolitical uncertainties. Many businesses are looking to increase their resilience, notably by relocating some operations, developing new ones in specific regions, or transferring businesses back to their home country or nearby countries. Investing in industrial and logistics properties that provide solutions for last-mile deliveries can be an interesting option in the commercial segment because they benefit from increasing e-commerce orders by customers. 

To begin your real estate investing journey, it’s important to assess your own capabilities, goals, and expectations. In order to get started, we have provided an investor checklist in our Wealth Matters guide, available now.