Risk of asset obsolescence significantly high for real estate investors - UAE's ADIA

The wealth fund noted that the real estate sector will need to adjust accordingly, by developing more flexible, multi-use spaces

  
Image used for illustrative purpose. Skyscrapers in Abu Dhabi.

Image used for illustrative purpose. Skyscrapers in Abu Dhabi.

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Abu Dhabi Investment Authority (ADIA), the UAE's biggest sovereign wealth fund, said it is too early to fully assess the long-term impact of the rapid shifts in consumer behaviour caused by COVID-19. However, the risk of asset obsolescence has significantly increased for real estate investors, the wealth fund noted. 

According to a 2020 annual review from ADIA, which manages the capital of Abu Dhabi government, the sovereign wealth fund attained 20-year and 30-year annualised rates of return of 6 percent and 7.2 percent respectively as of December 2020 compared to 4.8 percent and 6.6 percent in 2019.

ADIA, as a matter of practice, does not invest in the UAE and disclose the value of its assets. Global SWF, a data platform that tracks more than 400 sovereign wealth funds, estimates ADIA's assets under management at $726 billion.

"Early signs suggest that accelerated moves to more remote working and online shopping, along with less international travel, represent permanent changes, although by what degree is still hard to determine," ADIA said in its report.

The wealth fund noted that the real estate sector will need to adjust accordingly, by developing more flexible, multi-use spaces and by meeting rising tenant expectations around amenities and health and safety.

"Looking ahead to 2021, the easing of pandemic related economic hardship and social restrictions should be supportive for global office markets," the report noted.

"The recession of 2020 has created a meaningful economic output gap that is expected to be filled, further supporting real estate market fundamentals," ADIA said.

The hospitality sector remains under stress as it was the hardest hit by the pandemic, the wealth fund said, adding, tactical investment opportunities are likely to emerge in the coming year and beyond.

"In 2021, the Division will maintain its disciplined investment approach. This will include an ongoing focus on platform investments in areas backed by positive structural trends, and investments associated with knowledge-clusters as highly skilled workers are drawn to supply-constrained locations," the report noted.

(Reporting by Seban Scaria; editing by Anoop Menon)

(seban.scaria@refinitiv.com)

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