Lower interest rates will drive property purchases in 2025 and beyond, projected 90 North Real Estate Partners Co-founder and Managing Partner Philip Churchill, as a consequence of significant reduction in opportunity cost – especially for the high net-worth Islamic community of the Middle East.
“Family offices, particularly in the Middle East, have the highest propensity to invest in real estate.” With returns from deposits and money market instruments, including Sukuk, likely to go down in the near future, “they can equally see that real estate values are also at the bottom”.
Explaining to IFN Investor that past trends indicate it would take two to three years for property values to recover post a global financial crisis, like the recent pandemic impact, “it feels like we are heading to a sort of real growth phase in terms of new acquisitions now, which is exciting”.
Philip said the really promising prospects lie in facilities focusing on the aging population, especially in the UK, due to the limited supply of such care centers – unlike the widespread availability in the US, where there is broader acceptance for moving into retirement communities.
“For an Englishman, the home used to be his castle but I am starting to see this aspect changing because there is a sort of an affordability issue for the next generation and there is also no longer a need for this big house anymore.”
Looking beyond downsizing, Philip said more older folk in the UK see the benefit of selling their homes to release some money for their children plus for own retirement spending – which includes renting to live in places where they can be better cared for.
Embracing Shariah principles as a key operations driver, 90 North is actively having talks with a number of care home operators, “I really like the social aspect of delivering quality accommodation for people in need of some level of care. It also makes great commercial sense.”
While another favourite is student housing, though Philip cautioned that the market growth trend could peak latest by 2030 – where some towns and cities may get oversupplied – as there will be only so many tertiary learning spots for foreign students.
For more sustainable returns, Philip said retail spaces and certain logistical facilities could be better options as part of the post-pandemic economic recovery – as malls are now being positioned more as destinations.
Observing that e-commerce thrived in recent years, further boosted by very few discount retailers having any online presence, “I think we’ve reached some sort of balance now for e-commerce deliveries and in-person shopping. I can’t see that changing dramatically.”
Hence, the logistical facilities that 90 North will focus more on would be industrial spaces for longer term gains. Citing an example of a tenancy of at least 25 years, where the production equipment investment would far surpass rental costs, “they are probably going to stay the full term”.
With 90 North having a huge chunk of it asset portfolio in office space, Philip said some interesting developments are taking place due to a general shift to hybrid work practices – which seem to be more prevalent in the US.
Among the repurposing of these desirably-located office assets include for operations like light industrial process, data storage centres and hotels. “Even restaurants are getting put in, people are being creative in terms of what can be achieved.”
Office space conversion into residences is not usually practical due to the need to have more windows for occupants, explained Philip. “It can be a little bit tricky from a planning perspective to get that done and may not be viable from a cost perspective.”
