Norway’s sovereign wealth fund is overhauling its real estate investment approach as remote work and e-commerce reshape property markets globally.
Norges Bank Investment Management, overseer of the world’s largest sovereign wealth fund, said it plans to broaden its property holdings beyond traditional office, industrial and retail buildings. The fund will now target residential properties, data centers and life sciences facilities.
The decision recognizes office and retail's "structural headwinds from remote work and e-commerce" and their need for more operational management, Norges said in a statement. The fund will shift somewhat from direct property ownership to a mixed approach that includes investing in funds and companies — a change from partnering with companies on individual properties.
The $2.1 trillion fund currently owns $35.8 billion in real estate worldwide, comprising more than 1,300 properties in 14 countries. This includes more than 600 office, industrial and retail properties in the United Kingdom and about 500 primarily office and industrial properties in the United States.
"Our peers have successfully adapted to these changes, with increased allocations to emerging sectors," Norges said. "To enable the transition to more operational sectors, the industry has moved towards more indirect structures. Our peers are increasingly combining direct investments with platforms and funds to access specialized expertise and operational capacity more efficiently."
Norges said its approach to indirect investments can involve separate companies, each with their own focus: one might handle acquisitions and development, while another might hold and manage assets. The fund intends to invest in residential and data center properties this way.
Norges did not respond to a request for comment from CoStar News.
The move by one of the world's largest institutional investors signals a broader recognition that pandemic-era changes to work and shopping patterns may be permanent. The fund's pivot away from offices and retail could influence investment strategies across the global commercial real estate industry.
"Our reputation provides access to premier partners," the fund noted, citing its ability to "negotiate favorable terms and maintain meaningful influence when investing indirectly."
The fund's long investment horizon gives it an edge over competitors facing short-term pressures, the fund said. "We can optimize holding periods based on value creation rather than predetermined timelines and be patient through market cycles."
Retooled real estate portfolio
The fund began investing in real estate in 2010. Since then, the market has undergone "fundamental changes," the announcement said. The fund's previous strategy focused on "a limited number of sectors, geographies, and forms of investing," according to the document. The new approach aims to "better exploit the fund's defining characteristics to get access to the best opportunities across sectors, geographies, and investment approaches."
Under the new strategy, Norges expects its real estate holdings to range from 15% to 35% for office, retail, logistics and residential properties. Other emerging sectors would represent 10% to 25% of its holdings.
Geographically, Norges expects 30% to 70% of its real estate investments to be in North America, 20% to 60% to be in Europe, and less than 15% to be in Asia Pacific and other emerging markets.
Norges will have a new head of European investing going forward as well. Jayesh Patel has been appointed as co-head of Europe real estate, according to his LinkedIn profile. He shares the role with Guilain Decrop.
Patel joined the firm in 2015 and was named head of U.K. real estate in 2016. He had worked for Sabal Financial Group, Aerium Finance and Deloitte.