Real Estate Investment Outlook: the recovery is underway
Despite still-subdued market activity, our real estate outlook points to continued evidence of a market recovery that we expect to gather momentum into 2026, with transaction volumes edging higher, rents being supported by constrained supply, and valuation opportunities across sectors and geographies.
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Our H2 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.
Key takeaway
In the last edition of our investment outlook, we communicated that the early stages of a steady recovery in real estate is progressing. We maintain this view and – following an extended period of price discovery and uneven adjustment – evidence is mounting that the market has reached an inflection point.
Our proprietary valuation framework indicates a growing share of attractively priced opportunities across multiple sectors and regions, and we believe that we are in the midst of a compelling sequence of investments vintages to deploy into the asset class.
Investment activity has remained subdued in 2025 thus far, but while geopolitical events in H125 dampened sentiment, both transaction pricing and valuations have still shown modest improvements.
More recently investor sentiment has been aided by easing global tensions and greater certainty concerning the tariff environment. Survey evidence also points to institutional investors being under allocated to real estate, suggesting higher levels of fresh capital commitments going forward.
Whilst our economic and rental growth expectations remain modest, structural undersupply continues to underpin occupier markets. Elevated construction costs and reduced debt availability have significantly slowed new project pipelines.
We see increasing evidence of a “cost-push” impact upon rents, with rising construction expenses driving rental increases to maintain development viability. Should economies regain momentum, these dynamics could allow well-positioned assets to deliver real income growth.
Our valuation framework points to increasing opportunity across sectors and geographies, particularly in industrial and logistics, where market fundamentals are strongest. Overall, the market backdrop suggests that disciplined deployment should benefit from favourable entry points and rising cash-on-cash yields.
We are particularly drawn to sectors where operational improvement can unlock alpha – such as logistics, living, storage formats and hospitality which now offer pricing dislocations relative to long-term income growth potential.
Our preferred portfolio positioning has firmly shifted 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 building sustainability profiles, to have a greater influence on relative performance going forward when contrasted with recent years, which saw record sector-level total return divergence.
The current environment is catalysing compelling recapitalisation opportunities across real estate platforms, funds and other holding entities. These involve providing flexible capital solutions to established management teams facing time or capital constraints in optimising value.
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