Investors must increasingly examine core assets not closely linked to GDP

The head of real assets at Willis Towers Watson, Dania Zinurova, says investors must increase exposure to non-GDP-exposed real assets, including alternative areas such as digital and life sciences, as COVID-19 threatens core sectors.

“Many trends seen before Covid-19 are accelerating and will change the face of the core traditional sectors,” she says.

Zinurova expects sub-asset classes with greater exposure to GDP and trade to face challenging times in the short term. Infrastructure sectors most vulnerable in a post-COVID-19 world are volume-based infrastructure such as airports, ports, toll roads and commodity-linked assets such as midstream and upstream US oil and gas.

In real estate the most vulnerable sectors are retail, hospitality, leisure and restaurants, and Zinurova says Australian investors can no longer expect returns from core real estate strategies of between 10 to 12 per cent to continue. “That’s unreasonable to expect going forward.”

The core office is facing significant challenges around vacancy and declining rents. Zinurova notes that some global corporations are returning staff to offices with just a 25 per cent office density.

Asset owners will need to employ creative approaches to reposition those assets.

“How can you reposition the traditional office asset into something that can still attract tenants’ interest?’ Zinurova says. “Can it be something broader than just an office, like combining it with healthcare services, retail and entertainment? We might see a lot more mixed-use assets rather than very traditional core sectors.”

To listen to the full interview with Dania Zinurova on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.

Least vulnerable

Zinurova says the threats to traditional, core assets means investors must increasingly turn to assets not closely linked to GDP, including alternatives benefitting from tailwinds and megatrends.

The least vulnerable infrastructure sectors include social infrastructure like PPP, non-energy utilities, and long-term contracted energy assets. Digital infrastructure “will be really big going forward”.

The least vulnerable real estate sectors are logistics-related, e-commerce, data centres, and to some extent non-discretionary retailers like supermarkets and health care centres.

“At the end of the day, a real estate asset is all about who is using them and what are the fundamentals of the businesses who use those assets.

“If you get it right – by diversifying the underlying tenants by industries – particularly by industries less linked to GDP, you should be in a good position to build a very resilient real estate and broader real assets portfolio.”

Accelerating alternatives

Zinurova says alternatives are attractive because they are immature, which provides opportunities from a valuation perspective but also strong growth.

Covid-19 is accelerating trends such as digitalisation, which, along with data, includes digital services and digital assets such as broadband.

Other niches Zinurova highlighted include ‘dark kitchens’ – kitchens that cook for online delivery. Energy transition is also creating opportunities in storage and electric vehicle charging.

A global, flexible approach

The opportunity to invest in alternatives in Australia is small, however, which means local investors may need to look globally and consider establishing partnerships with global counterparts or start to build teams outside Australia.

The total portfolio approach (TPA) is a “perfect match” for the need to explore alternatives because it allows for more flexible and broader thinking, Zinurova says.

“Very often other sub-asset classes are not included in the portfolio because there is no place for them,” she says. “They require much broader thinking about portfolio construction.”


When it comes to valuations Zinurova says they “still haven’t corrected”.

“The valuers are struggling to assess the real impact on valuations across sectors”. It has been particularly difficult to value real estate because a lack of liquidity means there are fewer comparable transactions.

But she warns against using public market equivalents – such as ETFs – to assess valuations of unlisted real assets.

“In this current environment, when you look at anything that is listed, it’s really demonstrating a lot of noise to investors,” she explains. “There is a much greater disconnect between equity market valuation and the real economic fundamentals that we’re seeing.”

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