Pensions adviser Mercer tips commercial property this year amid Covid disruption

Pensions adviser Mercer is recommending investors to plump for commercial property and private assets amid the potential for further market volatility from the Covid pandemic and political unrest this year. 

The assessment comes as many global stock markets got off to a very strong start to the year, with US indices, in particular, hitting new highs despite the huge spike in Covid-19 cases and deaths in many countries that has led to the reintroduction of strict restrictions.  

Mercer said that the changes heralded by the Covid crisis last year have set up the prospects for gains across private assets, including commercial property, amid "Covid-19, political unrest, and market volatility". 

“In 2021, investors should consider stretching their risk appetites and consider their allocation to real estate," said Raelan Lambert, global head of alternatives at Mercer.

Although the pandemic will continue to challenge the property market, 2021 is likely to be an opportune time for entering the asset class with a medium-to-longer-term investment horizon. 

"Initially, investors should prioritise allocations to the largest, most liquid markets, where price discovery is furthest along.”

Mercer said that — having faced economic crises in the past — investors had, if anything, become "more resilient" during the Covid crisis last year.

"Globally, select private market strategies appear to be well-positioned to capitalise on post-Covid changes in consumer and business behaviours," Mercer said. "European private equity fundraising and investment activity has remained sluggish since 2019."

Its assessment looks at commercial real estate, natural resources, infrastructure, private debt, as well as European, US, and Asian private equity markets. 

"The opportunity set remains rich, but prevailing political and economic challenges caused by the pandemic need to be acknowledged and understood," said Mercer's head of alternatives in Europe, Middle East, and Asia Pacific Garvan McCarthy.

Last week, investors said the potential of more stimulus from the incoming Biden administration helped buoy shares across the world.