Will Sustainability be the New Normal in the Real Estate Sector?

The popularity of environmental, social and governance (ESG) investing is permeating all sectors, including real estate. In particular, sustainability is becoming a new normal in the sector, which could spur gains for real estate-focused exchange-traded funds (ETFs).

“There’s an odd dynamic that accompanies crises. While they may cause chaos and confusion, they also ultimately reveal themselves to be times of great opportunity. Such is the case with the ongoing, ever-shifting coronavirus pandemic, and its impact on property managers’ sustainability efforts,” a National Real Estate Investor article noted.

“Green initiatives were already a foregone conclusion for the great majority of practitioners, as well as for their ownership entities and occupants,” the article added. “COVID-19 accelerated the sustainability journey real estate was following, especially as it concerns the linkage between the built environment and the well-being of tenants and residents.”

Even as more global economies start to reopen, the changes are still apparent.

“Today, as we watch the slow return to offices, shopping, entertainment and other indoor spaces, there’s a greater reliance on the building environment to ensure—to the extent possible—our health and safety,” the article pointed out. “The conversation now includes introducing more outdoor air into our properties, filtering that air effectively, and ensuring that air exchanges occur more frequently.”


^MSEMURE data by YCharts

Real Estate ETF Options

As the real estate sector undergoes its industry adjustments, hopeful ETF investors can look to funds like the FlexShares Global Quality Real Estate Index Fund (GQRE). The fund seeks investment results that correspond generally to the price and yield performance of the Northern Trust Global Quality Real Estate IndexSM, which is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to the Northern Trust Global Real Estate Index.

Another fund to check out is the Xtrackers International Real Estate ETF (HAUZ), which seeks investment results that correspond generally to the performance of the iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index. iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index is a free-float capitalization-weighted index that provides exposure to publicly traded real estate securities in countries outside the United States, Pakistan, and Vietnam.

One more fund to look at is the Vanguard Real Estate ETF (NYSEArca: VNQ). VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments.

For more market trends, visit the ETF Trends.