The three things to look for when you buy real estate

Please note: This interview was recorded on 11 March 2025.

• Name of the fund and ASX ticker: Resolution Capital Global Property Securities Fund (Managed Fund) (ASX: RCAP)
• Asset Class: Global REITS
• Investment objective: The Resolution Capital Global Property Securities Fund (Managed Fund) aims to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD Hedged) Net TRI) after fees on a rolling 3-year basis. In doing so, the Global Fund aims to provide Investors with a level of distributable income combined with the potential for long term capital growth sourced from global real estate-based revenue streams.
• Fund Page: (VIEW LINK)

There’s always been a lot for investors to like about real estate. The concept of a tangible hard asset representing value, the possibility of deriving rental yield and the hope of longer-term growth. While direct residential property is often top of mind for Australian investors, Resolution Capital’s Andrew Parsons is seeing a lot to like about global listed real estate – or REITs.

In fact, he describes it as an “overlooked sector”, which has been under pressure in recent years and offering plenty of value – music to a property investor’s ears.

“If you look at the underlying value of what they represent, you’re buying them at or below replacement cost, at a time where you are seeing very low levels of new construction activity and high occupancy levels,” he says.

“As a consequence, we think that the sector is actually in a position to produce pricing power, and that’s a critical aspect in any investment.”

Three things to look for in real estate

Investors know that common sense principles are often a critical component of successful direct property investment. This is also true when it comes to listed real estate.

There are three things Parsons looks for.

“We look for strong real estate. We look for robust balance sheets, and we look for experienced aligned management,” Parsons says.

Or, to explain it in more detail:

1. Quality real estate where there’s low supply and high demand

“That gives the landlord the ability to push rents, at least in line with the rate of inflation so you’re getting a real return,” Parsons says.

2. Robust balance sheets

“There’s always a cycle, if you put too much debt on, you are forced to sell at weakness in the cycle or raise equity, which impairs your capital,” he says. He likes to be able to take advantage of the cycle.

3. Aligned management

“We’re looking for management that has been able to demonstrate their ability to manage through the cycle and extract more returns from the underlying real estate than the rest of the market can see,” says Parsons.

The growth opportunities in the current market

There are two key, and vastly different, themes driving growth across the REIT sector that Parsons is monitoring.

The first is the ongoing AI revolution, which is driving extraordinary demand for data centre. There are REITs dedicated to data centres with established industry leaders like Equinox Digital Realty.

“In the last 12-18 months, digital realty has actually been able to demonstrate pricing power because of the massive increase in absorption and demand. We haven’t seen the supply being able to respond quickly enough,” Parsons says, explaining that supply is not just the data centres but also the infrastructure to power them.

“We’re seeing very good pricing power,” he says – but also highlights that the strongest area of growth he sees across the REITs sector is from the second theme, an overlooked opportunity in seniors housing and healthcare.

We have an aging demographic, with deteriorating health, and not always the sufficient facilities to cater to this.

“We’re seeing naturally strong and stable – or consistent – levels of demand at a time where we’re not seeing new construction activity take place. As a consequence, revenues are growing very strong. 

There is pricing power and there are limited amounts of supply. We’re seeing double-digital rental growth from senior housing facilities,” Parsons says.

Parsons quips that this is an area seen as boring, but “it’s actually producing some pretty exciting returns at this point in time.”

A contrarian opportunity in offices

As the work-from-home debate rages on, Parsons argues there is a contrarian opportunity to be found in office real estate.

“We are definitely seeing strong demand for very good office spaces – good being location, amenity, sustainability,” he says, explaining that those who hold all those attributes can enjoy strong growth.

He’s seeing good value in locations like the West End in London or in Tokyo, due to supply constraints.

“It’s a very desirable location. Tenants are willing to pay the rent to be in the right location, in the right buildings,” Parsons says, adding that there is good value to be found due to the general consensus that the office market is doing it tough.

Another area that surprises investors as an opportunity set has been shopping centres.

“Shopping centres is an area that has been misunderstood as people think e-commerce will destroy the shopping centre,” says Parsons, but he says that people want to leave the house and experience things which has created an opportunity for bricks-and-mortar retailers.

“Retailers have recognised their most profitable sales are through their store network,” he says and has seen many retailers successfully adapt shopping centres to create a holistic experience for customers.

Listed real estate for total returns

Just as with direct property, listed real estate is not simply a yield strategy or a value strategy. Parsons describes it as a total return approach – you’ll generate some income alongside growth.

“What we’re looking for is an asset that should exhibit low volatility because you’ve got the benefits, for example, of long-term lease contracts. You’ve got the benefits of a limited amount of supply and robust demand that drives rents in an upward fashion over a long period of time, underpinned by replacement costs,” says Parsons.

As Parson puts it, real estate remains fundamentally attractive to a broad range of individuals and businesses and that means it has the potential to “generate a good consistent return over a long period of time.”

Listen to the expert interview above for more detail and as Parsons discusses some of the investments in his portfolio.