The full implications of the conflict in the Middle East and the rise of artificial intelligence (AI) have made it even harder to underwrite long-term real estate investments – and just at a time when institutional investors are reevaluating the role the asset class.
These were just some of the intertwining issues that major pension, insurance and sovereign wealth funds grappled with at the annual RE-Invest Summit on Monday and Tuesday in Cannes.
Following a week where heightened geopolitical tensions developed into actual war in Iran, the annual gathering of some of the world’s largest institutional real estate investors was inevitably preoccupied with what the consequences – not least, rising oil prices – would mean for an asset class that had not long ago suffered a period of interest-rate hikes.
But conversations among investors also revolved around the true implications of AI on the jobs market and, by extension, real estate. AI-driven job destruction is likely to exacerbate what is already a bifurcated office market, but the other vulnerable sector could be purpose-built student housing – if uncertainties in the job market prompt enough young people to reconsider going to university.
Today’s heightened macro uncertainty coincides with a period of reassessment among institutional investors over the role of real estate with muti-asset portfolios. Real estate has come under pressure in recent years to justify itself alongside other private-markets alternatives – including infrastructure and private credit – while some institutional investors have moved to ‘total portfolio approaches’, where asset classes are more explicitly in competition with each other.
Last year, many of the conversations in Cannes were dominated by the subject of data centres, the demand for which has helped boost infrastructure as an asset class in recent years.
However, amid rising concerns about an AI bubble, delegates this year wondered if real estate might provide some degree of AI hedge – with investors’ equity, fixed-income, private equity and infrastructure portfolios invariably carrying high levels of exposure today.
Perhaps real estate could play the role of a safe haven again.
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