Real estate recapitalisations: accessing bricks with businesses
In the second and final part in our series, we explore evolving occupier demands and the implication of this for managers of real estate.
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Institutional real estate investment was historically centred on buying established commercial property formats, leasing to credit tenants for as long as possible, and generating stable, resilient returns.
Buildings and their uses have now evolved – and occupier requirements even more so. Today, technology-enabled business models, new patterns of work and living, and heightened service expectations, among other dynamics, are rapidly redefining what tenants require from spaces.
As this shift accelerates, specialist management teams that are responsive in adapting their properties to better meet the evolving needs of occupiers are now essential to generating performance. This is especially the case in segments where customer experience, operational efficiency and brand is increasingly shaping income outcomes and resulting real estate values. At the same time, and as we noted in our prior paper, European real estate capital markets have experienced a period of substantial repricing and disruption, which is catalysing the emergence of potentially compelling recapitalisation opportunities as asset owners seek liquidity solutions to address balance sheet or funding challenges.
The ongoing evolution of the sector, notably the need to address additional operational complexity alongside sustainability requirements – are further fuelling these opportunities.
Moreover, this is all coming at a time when the definition of commercial real estate is broadening and investors are targeting an increasing range of emerging and accessible segments, which are taking an ever-increasing share of real asset portfolios.
Shifting occupier requirements
Occupier requirements across Europe have evolved quickly, though the degree of change varies significantly across markets.
By way of example, in the logistics sector demands relating to increasing automation, energy needs and digital integration are transforming requirements in key locations. Not every warehouse is becoming operationally complex, but many strategically important hubs are – and tenants are willing to pay for what should be considered “infrastructure” attributes.
Across living segments residents are placing a growing emphasis on service quality, digital convenience and community experience.
In the office sector traditional leasing dynamics still often prevail, but there is a growing recognition that asset owners may need to provide additional flexibility where possible, for example serviced space elements and enabling tenants to size up and down their footprint as business needs dictate. Certainly, amenity provision, hospitality aspects (for example, food and beverage provision) and the broader workplace experience now drive office quality definitions, alongside sustainability profile.
What binds these trends together are evolving occupier expectations – and focussed operational capabilities being a key differentiator for successful execution in real estate investment across property types.
The expanded sector menu
In addition to shifting occupier demands, there has been a steady institutionalisation of emerging real estate sectors. The growth of these has often been driven by structural tailwinds, such as demographic trends, and more recent societal changes in how people live and work.
For example, purpose-built senior, student and social housing have garnered substantial investor interest due to demographic tailwinds and incremental income returns, often with contractual or indirect inflation-linkage benefits relative to mainstream multifamily formats.
Elsewhere industrial and logistics has expanded into a range of storage formats including industrial outdoor storage (“iOS”), self-storage, cold storage and data centres.
Each of these sectors tend to require a different set of investment considerations and cater to a range of occupier and end-user needs. They also have the potential to provide enhanced diversification benefits and typically carry an ongoing yield premia relative to more established sectors.
This reflects the differentiated underlying demand dynamics, at times uncorrelated to broader economies, and the incremental operational management required to own and manage them effectively.
‘Established’ and ‘emerging’ real estate sectors
Source: MSCI, Schroders Capital
Institutional allocations to European real estate are shifting to a broader range of sectors
Source: MSCI Europe Annual Property Index.
Specialism coming to the fore
With this burgeoning operational complexity and greater array of more operationally intensive segments available to, and in demand from, institutional investors, specialist managers have come to the fore.
These teams bring extensive experience spanning revenue management, customer acquisition, labour and cost management, technology and brand development. All of these are capabilities not associated with traditional property management.
The hotel sector has long shown the difference that an expert operator can make, with two similar hotels having the potential to deliver materially different financial performance depending on how they are positioned and managed.
Specialist managers do not simply maintain buildings and collect rental income – they run operating companies combining real estate expertise with service delivery. Key competencies include commercial acumen, and the ability to leverage operating data and being able to directly influence the customer experience.
As the evolving menu of sectors continues to institutionalise, investors are therefore increasingly seeking partners whose processes, governance and capabilities are positioned to deliver long-term operational outperformance. The chart below highlights the growing capabilities set that real estate investment managers will require going forward.
Evolving requirements for real estate owners and managers
Source: Schroders Capital, 2025. The views shared are those of Schroders Capital and may not lead to favorable investment outcomes. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Past performance is not a guide to future performance and may not be repeated.
Recapitalisation to drive the next phase of growth
Alongside these structural shifts, market conditions are creating a compelling and addressable opportunity to recapitalise a range of real estate ownership structures.
These include real estate operating companies (REOCS) and platforms that are typically focused in a single segment, including the increasing array of emerging sectors. Specialist management teams and their operating companies are typically stapled to them, providing investors with aggregate value creation potential, as well as unique access to expertise.
Attractive recapitalisation opportunities are growing as a wider market dislocation means incumbent ownership structures, such as private real estate funds, have pending maturity and resulting liquidity requirements – at a time when there is evidence of a broader real estate market recovery underway.
Read more:
- Real estate recapitalisations: Navigating dislocation and unlocking value
- Real Estate Investment Outlook: The recovery is underway
Management teams of REOCs and platforms are therefore seeking longer-term ownership, or at least an injection of new growth capital, to support and drive the next phase of their growth having demonstrated proof of concept. This also reflects structural trends beyond the current market dynamics; as specialist platforms scale, many reach a point where additional capital is required to expand operations, institutionalise governance or consolidate further in fragmented markets.
This is coming now at a time when traditional equity and debt capital sources are constrained, leaving recapitalisations as an effective solution. This reflects trends seen in other asset classes, such as the rise of continuation investments in private equity.
Similarly, and in line with the trends described earlier in this article, many management teams may also seek additional and additive operational expertise alongside new sources of capital.
For example, in European self-storage, consolidation has accelerated as platforms seek the scale and expertise required to garner and harness operational efficiencies. Elsewhere, in student housing several operators are evolving from single-city businesses into multi-market platforms attracted to resilient demand dynamics.
From liquidity solution to growth driver
The growing need for liquidity and capital solutions following the substantial European real estate market correction is clear. What is equally clear is that the real estate market, and occupier demands, have evolved, with a growing menu of adjacent sectors coming to the fore and a heightened need for operational specialism to drive long-term outperformance.
In short, real estate is now about bricks and the businesses operating within them.
For investors capable, recapitalisations offer a compelling blend of repriced real estate and growth-driven upside. These deals could also represent a win-win, with specialist managers and owners benefitting from much needed liquidity solutions, time and a potential inflex of additive expertise to drive their next phase of growth.
It is important to note that the opportunity set for recapitalisations – in common with the recovery across the wider market – remains uneven. Key considerations revolve around the ability to underwrite segment-specific risks, navigate regulatory landscapes and the varying maturity of management teams and operating companies being backed.
However, where expertise, capital and opportunity combine, recapitalisations represent a compelling opportunity to access high-quality real estate assets and platforms with balance sheet and funding challenges that represent a hurdle to maximising potential.
Moreover, this is an opportunity that we believe will persist even beyond the current market environment. This reflects the evolving structural dynamics in global real estate – and the significant headroom for growth in Europe in particular, as allocation trends catch up with the shifts we have already seen in the US.
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