Recapitalisation and sectors like industrial & logistics currently offer some of the most interesting opportunities in the real estate market, claims Kieran Farelly, head of global solutions, real estate at Schroders Capital.
Speaking to PropertyEU in Cannes, he highlighted that recapitalisation could potentially reach €50 mln a year, through repairing balance sheets, paying down debt, or reinforcing them for a higher rate environment. Additionally, there's a massive green capex need for sustainable development that requires funding.
‘We're seeing a growing number of deals that seem to have already factored in a higher long-term interest rate environment. This adjustment creates attractive investment opportunities, with potentially higher returns in some cases,’ said Farelly.
He observed that the feedback from market participants at Mipim 2024 is more positive, with more investors around compared to 2023. ‘They might not be ready to immediately start investing again, due to various reasons, but they're certainly planning for it. In six months' time, there will be more capital available for investment,’ he added.
Farelly highlighted the increasing importance of operational expertise in real estate investment, which is especially true for the office sector, as the workplaces of the future need to be more sustainable and offer a variety of amenities to attract tenants.
He sees renewed optimism among institutional investors in terms of capital raising. Large sovereign wealth funds are showing interest in specific operational sectors through platforms or similar structures. At the same time, private wealth and family offices are displaying a strong appetite for real estate investment, particularly on a transactional basis, such as luxury hospitality.
‘And the ever-present issue of sustainability is no longer just a talking point, it's a fundamental factor influencing asset pricing. Failing to address sustainability will likely create significant challenges for investors,’ he noted.
Uneven price changes across different locations and property types are creating a series of investment opportunities in the real estate market, according to a summary of the Schroders Capital Investment Outlook: Real Estate H1 2024, presented at Mipim 2024.
The report, authored by Farrelly, highlights that price adjustments haven't been uniform across regions, sectors, or investment structures, creating a window of opportunity for investors to enter revalued markets in stages.
Demand may have softened slightly, but tight supply is keeping rents stable, with ESG-compliant spaces seeing potential for future growth.
Challenges in the debt market are creating opportunities for investors with access to private real estate debt and capital solutions.
Markets like the UK, Netherlands, and the Nordics offer immediate opportunities due to the fastest repricing.
Industrial and logistics remain attractive due to strong fundamentals, while operational properties with inflation-linked income are also favourable. New property types beyond traditional staples like offices and retail offer exciting 'early mover' possibilities.
