We’ve recently seen more and more interest from our clients in responsible investment and impact investment strategies, but how much “impact” is really being created and where is the potential for returns coming from? We’ve been staying on top of the most recent impact investing trends to find out.
Impact investing is not unique to real estate or specific sectors within real estate and our clients have found many ways to implement sustainability and better social practices in their investments. For the purpose of this article, we have chosen to focus on three of the fastest growing real estate markets in the space:
1. Affordable homes
2. Senior living
3. Eco-friendly real estate.
Affordable homes have become increasingly popular as pressure has grown on the government to meet the rising demand for social housing. Private equity houses and large institutions have leapt at the opportunity to form JVs with housing associations and local authorities. However, whether redeveloping or building new homes, it is difficult to find a balance between creating affordable housing and meeting return requirements. Our clients are trying to find a middle-ground through introducing shared ownership schemes or blending affordable housing with high end residential.
Pure impact investors are concerned that the “affordable housing” banner is being used to raise funds whilst the focus of the investments themselves is still on meeting return requirements rather than making a difference. As the market is still finding its feet, institutions have the ability to lay the foundations from which future investors will follow. Should we be focusing on securing government funding or should the private sector be meeting the demands of a growing housing crisis by accepting lower returns? If we continue to work on the current affordable model, how long will a residential asset in a prime location need to be sold as an “affordable home” before it can be rebranded as high-end residential?
Senior living has seen an increase in activity with private equity and institutional investors alike tapping up smaller independent living and care platforms with the view to scale their investments over the coming years. Despite the heightened impact of Covid-19 on senior living, our clients are capitalising on the UK’s growing senior population, although questions are raised on the impact these new investments are having on those most in need.
The UK has been leaning towards a ‘residential for sale’ model with limited ‘residential for rent’ units, making it difficult for low-income households to buy or rent suitable senior accommodation. This is further aggravated by a reduction in government fees which has further limited the availability of government funded-care homes. Will investors take a broader approach to support those who can’t afford high-end senior living, or will the government need to increase its funding to support the senior living space too?
On the topic of broadening our investment approach, whilst currently seen more on the continent, green and eco-buildings are also growing in popularity. The UK market saw its first net-zero carbon buildings in early 2020, following in the footsteps of institutional impact investors such as the Dutch investor, Triodos Investment Management, who launched their first carbon-neutral real estate fund in 2014.
With the boom of the tech-age, institutions are aware that the future will be built on energy, and therefore energy efficiency. Eco-buildings are not only good investments from an impact investing perspective, but they also help to create sustainable and cheaper energy usage. Although we need to be careful of ‘greenwashing’ investments, eco-buildings have the ability to lead the way on supporting and improving an industry that is becoming increasingly reliant on technology. The benefits of sustainable buildings are not limited by sector. Any building, whether a data centre or warehouse can be made to be environmentally sustainable, which allows all investors to benefit and have an impact in this area.
The original genesis of impact investing was that capital could be deployed to have a genuine social impact, with the scale of returns perhaps a secondary consideration. As power becomes increasingly decentralised and business giants begin to take the lead on solving our social and environmental problems, we are given the opportunity to choose what power our investments have over benefiting the wider world.
The financial impact of coronavirus is not yet being felt to its full extent, but will institutions rise to the challenge of supporting those most in need through responsible investing, or return to the same investment cycle again? How can we promote impact investing in less obvious asset classes, not just in high impact sectors such as senior living and sustainable buildings? Is there a way that the impact investing model can be scaled up to increase returns? Can investing to have an impact be profitable across the risk-return spectrum, and through the next real estate cycle?