There seems to be a disconnect between the recent announcements from major tech-sector employers (let’s label them Big Tech) and the allocations from large institutional money managers (we’ll call them Big Money) during the pandemic. While Facebook and Twitter have announced permanent remote work models, in 2020 Big Money allocated a proportionally larger amount of investment dollars into office properties in major markets. A new Reonomy report studying 35 of the largest money managers says this implies that Big Money doesn’t view the prospect of increased remote work as a long-term threat to office values, notwithstanding the pronouncements from Big Tech.
The Reonomy report found that in a year that saw them curtail real estate investment generally, Big Money managers—including alternative investment managers, bank affiliates, insurer affiliates, real estate-focused managers and residential specialists—allocated $42.85 of every $100 of new investment into office properties through 2020. That’s up from the historical average of 34%.
Historically, the Big Money managers bought 37.2 million square feet of office space during the pandemic, only 4% less than they bought in 2019. Yet, on average, they paid 12% more per square foot last year, suggesting they expect a meaningful return to office.
2020 saw Big Money managers cut back on real estate investment by a sizable 34%, putting their dollar volume on par with 2014 levels. However, Reonomy says the money managers otherwise didn’t deviate significantly from pre-pandemic allocations, aside from putting more into office properties. This suggests “changes to longer-term outlooks are either minor or have not yet been implemented,” according to the report.
If the allocations remained consistent, 2020 did see other changes occur. The report notes, for example, that Big Money investment activity through the pandemic continued to be focused more heavily on lower-cost-of-living markets.
“These established, but smaller, markets captured a greater portion of the Big Money investment activity in 2020 in terms of total count of properties acquired and total investment dollar volume,” according to Reonomy. “While markets such as Charlotte, Minneapolis, Nashville saw notable increases in attracting the Big Money investment, these markets still remained out of the top 10 markets for Big Money portfolio allocations in 2020.
Meanwhile, contrary to “recent media buzz around a great urban exodus,” Big Money continued to make investments in many of the largest population centers. Although not at the same pace in prior years, Reonomy sees the acquisition of new properties in many of the large coastal hubs as “indicative of Big Money’s views of their resiliency.”
And while Big Money appetite for industrial was strong in 2020, it wasn’t quite as strong as in 2019, coming in just below the 10-year historical average for investment in the sector by institutional money managers. “It does not appear that the big price increases through 2020 for industrial space were driven primarily by Big Money - who appear to be more selective when allocating their industrial investment dollars,” Reonomy says.
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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