Lucy Fletcher
Lucy Fletcher, Fund Manager, CBRE Investment Management, became the new Chair of INREV in May. Two months into the role, and against the backdrop of evolving investor sentiment toward real estate, IQ spoke to Lucy about her perspectives on the non-listed real estate industry and how INREV can help address some of the key challenges.
Deglobalisation, demographics, decarbonisation, digitisation
According to Lucy, the four ‘D’s neatly encapsulate the breadth of the key themes underpinning the non-listed real estate investment industry today. Each is a significant topic in its own right, but they are also closely interconnected. Unpicking and addressing them requires thoughtful prioritisation. However, deglobalisation is seen by Lucy as the axis around which the others spin.
As Lucy points out: “Deglobalisation is something that's happening in every region. That’s important, I think, for Europe and what that means in terms of capital allocation. I think it's one of the more complex issues that we need to grapple with as an industry.”
Dealing with the specific challenges of deglobalisation will require the industry to adopt a new strategic lens. In large part, says Lucy, this should focus on harnessing tech and data to improve decision making, efficiencies and outcomes. In this respect, she references the valuable insights and indices that INREV already provides, alongside the objective that the association has to continue to evolve and enhance these elements of its offer. Lucy also highlights the opportunity for the industry to borrow ideas from other asset classes where data occupies a pivotal role: “As an industry, I think we could embrace a wider data set perhaps than we look at.”
However, she also acknowledges the limitations imposed by a lack of historical data in some of the emerging niche sectors. Citing cold storage as an example, Lucy highlights the fact that there’s insufficient product to provide actionable insight. Consequently, it’s difficult for market participants to know how to price accurately. Overall, though, she believes the industry is making progress on data: “I think we are generally more progressed as an asset class in providing transparency on data when you look at us in the context of, say, private debt or infrastructure.”
ESG has evolved materially
Lucy sees progress on ESG, too. “I do think ESG has evolved materially. I think we've come a long way in a short period,” she says. The work that INREV continues to undertake around ESG is clearly an important factor in fostering change. The scope of this work is significant, from helping investment managers to align more closely with the ambitions of investors to guiding market participants through the complexities of policy and regulation, such as SFDR.
But Lucy is also keen to emphasise that there’s still plenty for both INREV and the industry to achieve. She identifies two key factors.
The first, and arguably, the biggest missing piece of the ESG jigsaw remains the ability to provide tangible “proof of concept” on the critical issue of value. As Lucy puts it: “Being able to articulate the impact of ESG at an asset level.”
The second is about adequate provision of the right sort of stock. In residential, for example, lack of supply means there is still a very limited choice, which makes meaningful change difficult. Lucy identifies good examples of developers in the Nordics doing “quite a lot to embrace ESG”. There is, she says, an opportunity for INREV to “showcase some of that good design and how it's additive in the universe of sustainability, rather than it just being about delivering product as quickly as possible”.
Less geographical diversification
On the broad topic of macroeconomic and geopolitical drivers impacting real estate, Lucy points quickly to the shifting sands of global investment capital.
While acknowledging that, despite rising tax implications, investors continue to allocate to the US, she highlights an inexorable drift of capital – particularly from North America to Europe. At the same time, structural and policy shifts in markets like Germany that are turning to heavy investment in infrastructure and defence spending are radically changing market dynamics.
The upshot, says Lucy, is that investors face the challenge of a rapidly shrinking investible universe. Maybe they will also need to reassess their expectations of how geographical diversification can deliver for them. As she summarises: “I think geopolitics and this sort of shift underlie the importance of geography and understanding how diversification is impacting portfolio strategy.”
But she adds that this shift in direction has also prompted diversification of a different sort: “I think it's not enough today as an allocator to say I'm just going to geographically diversify. If you are a euro-based investor, you've got to be able to sectorally diversify.” Lucy anticipates the emergence in Europe of niche sectors, such as self-storage, cold storage and student housing at an institutional level. In respect of student housing, she highlights that, “the expectation is that Europe is going to be a leader in education”.
In her view, INREV has an important role to play in educating its members on emerging sectors by leveraging its partnerships with peers in Asia Pacific and North America to share their knowledge of, and insights into, these new products. This will, says Lucy, “help the industry in Europe develop” and improve the supply of products for investors to invest in.
Connected to sector diversification, Lucy identifies the growing appetite among some market participants for operational real estate. But she is quick to point out the need for investors to partner with specialist investment managers in this arena – as she puts it, “somebody that can actually fully be vertically integrated, really understand the data”. Again, she sees a clear role for INREV – especially through the Operational Real Estate Committee – to help members understand the risk factors involved.
Innovation is what we need
Running through her whole discourse is an emphasis on the vital importance of education and innovation. Very conscious of the changing nature of real estate and the world in general, INREV’s new Chair is keen to hammer home why these factors matter so much. She’s equally keen to ensure that the association maintains its strong focus in this area.
“We've talked a lot about the real estate, but we should probably talk about the people,” says Lucy. Against the backdrop of new sectors and segments, new emerging technology, and constantly evolving challenges and opportunities, there’s a very obvious need to identify and promote the new skill sets the industry will need and to leverage a more innovative mindset.
As Lucy says: “I think innovation is something INREV’s demonstrated an amazing track record in doing. Now, it's a question of continuing to figure out how we harness that as an industry and how we continue to innovate, because it's the only way that we [the industry] can be successful.”
Listening to our membership is critical
There’s a final point that stands out as a high priority for Lucy in the weeks, months and years ahead as Chair of INREV, and that is paying due attention to the membership. Remaining relevant is key – continuing to evolve but without losing sight of the association’s core goals and values.
For Lucy, there is only one way to achieve this objective: “The most important thing we can do is listen to what our members want and need, and then make sure that we're delivering value, driving best practice and leading through innovation.”