Welcome to Soundbites – weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life.

For today’s soundbites, we ask Steven Marino, senior vice president of portfolio management at GWL Realty Advisors, about the risks and opportunities of real estate investments, where he sees opportunities, and how societal changes could impact them. We started by asking what he likes about real estate investing.

Steven Marino (SM): Real estate is an excellent addition to a multi-asset class portfolio, delivering a number of key benefits. First and foremost is the predictable nature of its return profile. Effectively, its historical income return has contributed 80% of total return. Secondly, real estate provides stability and historically very limited correlation to other asset classes, complementing a multi-asset class investment. Thirdly, it provides a pretty important natural hedge against inflation. And finally — and arguably maybe most importantly — it benefits from the long-term compounding, which really helps to keep investors invested through cycles.

Why he’s so bullish on industrial spaces, as well as multi-family residential properties.

SM: In the industrial space, in the short term, I see great opportunities. We’ve been continuing to see substantive appreciation in rents across the asset class. And in many of our key metropolitan markets across the country there continue to be substantive supply constraints that are really limiting the ability for the development cycle to continue to generate adequate new supply. So, in the absence of new supply, and with continued strength and growth of the adoption of e-commerce, we’re seeing insatiable demand from the large users of space. And that’s really manifested itself in substantive pressure on rental rates, which is ultimately generating very strong capital appreciation. So, it feels like a really great time to be an industrial investor. And, certainly, tailwinds continue to be in place for the foreseeable future. Maybe the other space that I’m pretty interested about personally is the multi-family sector, particularly in the urban context. We’ve seen a lack of demand in that urban multi-family sector. And so, vacancy rates have increased and some pricing power has certainly decreased. And I think with the reopening of our economy and the return of student populations and immigration programs in Canada being set to return in fairly full consequence, I think what we’re going to see in the shorter term is a material reopening of the economy, which will create a material increase in demand, and ultimately manifest itself in a material improvement in our rental rates.

Why he wants his retail holdings to be anchored by grocery stores.

SM: Our retail strategy is still a relatively small portion of our overall investment strategy — somewhere between typically 10% to 15% of our overall asset base. One of the things we’ve certainly identified, and is certainly a core thesis of our investment strategy, is that these grocery-anchored centres provide a needs-of-life component that will have local communities visiting them with some frequency. So, generally speaking, most of our grocery-anchored centres will also have a pharmaceutical store, they may have a financial or bank or two attached to them, as well as some convenience food locations. They really provide kind of multiple cross-shopping opportunities which really help the viability of the centre as a whole.

The coming evolution of office space.

SM: Good real estate has always had the ability to adapt. In that regard, I think there’s going to be changes and adaptations to the demands that users have for space in an office setting. Users are going to want real estate that creates value for their business. And so maybe we’ll be changing the number of boardrooms that might exist on a typical floorplate. Maybe we’ll be changing the number of breakout areas that exist to help accommodate more collaborative sessions. But I think, ultimately, real estate’s adaptive capability is what sets it apart.

And, finally, what markets within Canada he’s particularly keen on investing in.

SM: We’ve continued to like the virtues of, we’ll call it an MTV strategy, being Montreal, Toronto, and Vancouver, generally because of the strength of the underlying economies, and the strong diversification in those economies. But over and above that, we try to complement that with opportunistic investing in other markets across Canada. We generally invest in Canada’s seven largest markets: Ottawa, Calgary, Edmonton and Halifax. And even outside that, we certainly invest in some other communities that we think on the margins can help improve the overall construction of the portfolio. But I think there are opportunities across all geographies and across all markets and all asset classes. I think it’s really about trying to source the right opportunity at the right price to drive value for that investment.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to Steven Marino of GWL Realty Advisors.

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