How do you make investment decisions based on trends that are starting to emerge now, but whose full impact might not be felt for another 10 or 20 years?
That is the question posed in a new research paper called Innovation: An Opinion About Change produced by UBS Asset Management.
It looked at three areas — perception, demographics and technology — and outlined types of assets that should start to be valued at a discount or premium today, based on trends that will unfold over the coming years and decades. Here are some of the key asset types to watch.
Value going down
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Any asset that can be labelled with an environmental or social stigma. Whether it aligns with your beliefs or not, the perception that climate change is real and manmade is pervading society and changing government policy. UBS said assets that have an environmental or social stigma, or weak sustainability credentials, may become “un-ownable” because of this.
Assets leased to companies deemed unethical. The same is true of assets leased to tenants that hit the headlines for the wrong reason. It doesn’t matter if notoriety is fair or not, assets leased to tenants considered unethical will be devalued nonetheless.
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Property to do with parking. As driverless car technology advances, centrally located offices that receive a high rating because they have large car parks attached will be re-rated, and there will be the expense of converting that car parking space, UBS said. The same trend will affect car parks themselves, or assets that have previously benefitted from proximity to them.
Out-of-town business parks. The demographic shift that urbanisation is creating, alongside potential changes in car use, could make stand-alone out-of-town business parks obsolete. UBS said the same is true of any asset with a long lease to a single tenant where there is no residual land value.
Value going up
:quality(75))
Assets with great sustainability credentials. As perceptions about environmental change continue to shift, more governments and large corporations are putting in place strict sustainability criteria about the buildings they can and can’t lease. The most sustainable buildings will be able to attract these large, stable tenants.
Well-being or life style assets with a low carbon footprint. Counter to the discount for lack of focus on these factors, a premium could develop for socially and environmentally conscious assets.
:quality(75))
The ex-urbs/suburbs. The flip side of the urbanisation trend is that ex-urbs and suburbs might come back into fashion. As more and more people want to live in or close to major cities, these cities will inevitably expand. And if driverless cars make commuting a less stressful experience, living in the suburbs might become a more pleasurable experience again.
Assets supporting the ageing population like medical offices and assisted living. UBS pointed out that studying demographics makes it fairly easy to predict the need for assets aimed at an ageing population if you don’t repeat the mistakes of U.S. developers in the 1990s and build assets today that will be required in 20 years’ time.
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