Schroders Capital Investment Outlook: Real Estate H1 2025
There is increasing evidence of positive market movements in relation to activity and transaction pricing – and our value framework suggests that, despite a challenged economic outlook, we are in the early stages of a steady real estate recovery.
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Our H1 2025 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 the key opportunities we see within these preferred strategies.
Report highlights:
Key takeaways
- There is now increasing evidence of positive trends in activity and transaction pricing – and our proprietary valuation framework continues to point to immediate opportunities across multiple sectors and geographies.
- As such, while there is recognition of a challenged economic outlook and recently elevated geopolitical uncertainties, we see the early stages of a steady recovery in real estate progressing.
- We therefore remain firmly of the view that 2025/2026 will be a strong vintage for deployment, with the potential for capital invested to deliver outsized returns over the medium to long-term.
Market overview
- Operating conditions are being well supported by continued tight supply and an increasing scarcity of modern, ESG-certified space.
- Elevated construction costs have been a key reason for muted supply pipelines, and this dynamic may be further exacerbated due to the potential for large-scale rebuilding programmes, assuming a cessation to major conflicts across the world. Further increases in construction costs could have a meaningful ‘cost-push’ effect on rents.
- Investment market activity is showing signs of a nascent recovery, but remains subdued compared to historic levels. Improving investor sentiment should catalyse higher volumes this year.
- Our preferred portfolio positioning is evolving and shifting to a more neutral stance across sectors. This is owing to greater visibility on ‘rental floors’ within the retail and office sectors, as well as the elevated yields available for future-proofed assets.
- More broadly, we expect asset and location considerations, for example sustainability profiles, to have a greater influence on performance going forward relative to recent years, which saw sector performance divergence at record levels.
Findings from our real estate valuation framework
- Our market valuation framework continues to signal 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.
- Given the broad-based repricing across sectors, we now view there to be more widespread value being signalled across sectors with less of a spread in relative and absolute values.
- Owing to solid underlying fundamentals, the industrial sector continues to show attractive relative value on a global basis, with likely lower levels of expected obsolescence and positive cashflows profiles.
- A range of operational segments able to provide ‘inflation pass-through’ directly or indirectly are also particularly attractive, with many being well supported by favourable structural trends.
- Supported by elevated entry yields, grade A/prime offices meeting ‘modern workplace’ standards and able to service ever-increasing occupier requirements, now show value, with tight supply pipelines for such building profiles providing the potential for growth.
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