QuoinStone IM 2022 Predictions
Our outlook on the major trends for 2022
There is no reason why property should not be owned and traded in the same way as corporate entities. Both are complex financially (arguably companies being more so) and both are unwieldy to buy and sell. The difference is the completely routine way that shares are traded transparently in the open market. Having experimented with crowd ownership in commercial property in 2017/18 and seen the huge regulatory problems of that model, the emergence of IPSX would seem the breakthrough medium that will allow property to be seen in the same light as trading companies across the globe. This train has started to roll and we think the change is now inevitable (and desirable).
Responsible Financial Management
We have seen the varying styles of a broad range of property investors over the last 20 years and the approach to cashflow management is stark. Smaller, private investors tend to treat the cashflow as both the source of distributable income and the source of funds for the rainy days. Much like a responsible corporate entity will retain profits sufficient to see them through the foreseeable road bumps of commerce, private owners also value the comfort in retaining cash to avoid having to put money back in when times are not so great. At the other end of the spectrum, the drive to distribute as much income as possible leave property entities underfunded and the real estate undermaintained leaving capex requirements to the next owner. We see a shift to more responsible cashflow management as a necessity driven in part by ESG requirements that are now unavoidable across the market.
Long term ownership vehicles are becoming more normal and 3-5 year property plays look less and less sensible when macro-economics throw a spanner in the exit works.
The environmental impact of existing legacy property stock is well known. As we come out of Covid over the next few years, attention that may have been lost to fire-fighting the here-and-now will shift back onto ESG and how occupiers and owners will meet their obligations to future generations. Whatever we think of Greta, she has history on her side and environmentally poor properties will be un-investable across the institutional sphere.
Recognising this is a good thing and an investment opportunity in its own right.