IN FOCUS6-8 min read
Schroders Capital Investment Outlook: Real Estate H2 2024
Our latest outlook shares findings from our proprietary valuation framework, which suggests that the sequential opportunity to access the long-term benefits of real estate on an attractive entry basis is now live across key geographies and sectors.
Lees volledig rapportSchroders Capital Real Estate: H2 2024 Outlook
34 Pagina's
Autheurs
Kieran Farrelly
Global Chief Investment Officer, Real Estate & Head of Real Estate Solutions
Our H2 2024 Investment Outlook provides a summary of our proprietary relative value framework, which informs our assessment of how investors should be seeking to position their real estate portfolios for medium-term to long-term outperformance. It also provides our teams’ views on preferred strategies playing to the most impactful macro themes, as well as key opportunities within these preferred strategies.
Key highlights:
Market overview
- In our H1 outlook, we outlined the prospect of a sequential opportunity where investors should order investments across geographies, sectors and structures. Our view is that this opportunity is now live due to the extent and uneven pattern of the repricing we’ve experienced to date.
- Having triggered the repricing experienced since 2022, monetary policy is now transitioning to become more supportive, and we’ve observed renewed interest and activity emerging in real estate. This is evident from investor feedback, with renewed allocations for 2025 on the agenda, as well as recent improvements in data points including both listed real estate pricing, a reliable lead for private markets, and industry sentiment indicators.
- In relation to underlying operating fundamentals, in most markets income has been rising amid both valuation adjustments and muted economic conditions. This underscores that recent market repricing has been primarily driven by interest rate movements and has been somewhat dislocated from underlying fundamentals, bar in the much-maligned secondary office sector.
- While demand has not been immune to slow economic growth, tight supply conditions due to higher construction and debt costs has created a scarcity of space in some areas, most noticeably for high-quality, ESG-compliant space. This is expected to support an upward trend in rents over and above inflation once economic growth accelerates.
- Overall, we believe markets are now well cyclically positioned for investors to access the long-term benefits of private real estate on an attractive entry basis, driven by three key factors:
Findings from our real estate valuation framework
- We recognise that market repricing is ongoing and spotting a trough is a difficult task, but our framework indicates 2025 is set to be a compelling vintage for real estate investment.
- Our framework is signalling immediate opportunities in markets that have experienced the fastest repricing, such as the UK and Nordic region, followed by the US and other select Continental European markets.
- In the Asia-Pacific region, cyclical opportunities are available in markets that align with China's delayed recovery and/or that offer alternatives in the nearshoring/friendshoring of supply chains.
- We continue to have high convection around the opportunity to access industrial and logistics assets that have now largely rebased to attractive price points in most major markets, supported by strong structural fundamentals. Prospective returns in Europe are particularly compelling given limited supply.
- We continue to favour operational property types that have strong demand-side tailwinds and can deliver inflation-linked income, either directly or indirectly.
- There is growing recognition that the composition of real estate portfolios is evolving and the ability to create the ‘core of the future’ across a range of segments adjacent to the traditional staples of offices, retail, industrial and multifamily, is offering a range of compelling early-mover opportunities.
Key takeaways
- Given the extent of the revaluations experienced, our view is that investors should position themselves on the front foot and prioritise opportunities according to a ‘sequential playbook’, with an ordering of focus across markets, thematic opportunities and investment structures where relative value is most evident.
- We believe all real estate is operational, and armed with a hospitality approach one can drive additional income from services by contributing to the success of the tenants’ businesses in the assets, with sustainability and impact considerations a high priority.
Lees volledig rapportSchroders Capital Real Estate: H2 2024 Outlook
34 Pagina's
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Autheurs
Kieran Farrelly
Global Chief Investment Officer, Real Estate & Head of Real Estate Solutions
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