IPE Real Assets March/April 2025: Predicting the unpredictable

Real estate markets seemed to finally be mounting a recovery at the end of 2024. In Europe, transaction volumes reached €55.6bn in Q4, according to MSCI – the highest quarterly figure in two years. Real estate investors therefore headed into 2025 with a sense of optimism, with one eye on falling interest rates and the return to transactional activity.

But it quickly became apparent that 2025 was not going to play ball. Bond-market volatility, geopolitical crises, global trade tensions and inflationary pressures all point to a difficult backdrop this year, not the most conducive to a steady revival.

As Jay Kwan, managing director and head of Europe at QuadReal Property, says in our MIPIM preview, on page 16, that the geopolitical uncertainty is making it harder than ever to forecast real estate markets – from capital values and cap rates to transaction volumes.  “Given that so much of this could be influenced by geopolitics, it’s really hard to project or predict,” he says. “If rates stay elevated, capital values will stay under pressure.” He adds: “Geopolitical risk has arguably taken precedence over macroeconomic cycle risk in shaping the challenges facing our industry this coming year.”  

Robert-Jan Foortse, head of European real estate at APG, the asset manager for the largest pension fund in the Netherlands, says: “I think lots of the discussions at MIPIM will be around geopolitics…. this will be top of mind for everybody.”

Kwan and Foortse are among a number of major institutional investors attending the RE-Invest summit at MIPIM. Conversations at the closed-door event among pension, sovereign and insurance funds will be indicative of how the world’s biggest investors will act this year.

This year’s investment intentions survey, released by European real estate investor association INREV at the start of the year, suggested an uptick in risk appetite. Approximately 62% of investors planning to allocate capital in Europe favoured high-risk strategies, with value-added investments being preferred by 47%. But there was an increase in interest in core strategies – 38% of investors favoured core, up from 21% in 2024. On pages 6-8 we explore whether the climate is right for a revival in core real estate.

On releasing the investment intentions survey, Iryna Pylypchuk, INREV’s director of research and market information, said 2025 could “stand as a placeholder year for many investors”. She explained: “Political and economic uncertainties in many markets prompt [them] to recalibrate strategies and assess the long-term implications of evolving market dynamics while focusing on tactical disposals in real estate and broader multi-asset portfolios.”

For Foortse, “the big question” is whether the current backdrop of geopolitical uncertainty and protectionism is a blip in the long-running globalisation mega-trend, or whether the world is moving into a new structural phase. 

“Short-term arbitrage opportunities” might arise this year for investors, but Foortse says APG is “more concerned about those long-term impacts because our portfolio is a long-term portfolio”.

One of the biggest long-term structural shifts taking place is the ageing of global populations. In our demographics report from page 21, we explore the implications for real assets markets. We look at the situation in Europe, North America, Africa, China, India and Australia, all of which are experiencing ageing.

Last year, BlackRock produced a report that outlined how changing demographics will have a “profound” effect on the performance of real estate over the next five to 10 years. 

On page 31, Simon Durkin, global head of real estate research and strategy at BlackRock, says: “Investors need to look to where these shifts are likely to play out and to participate as early movers in the relatively nascent sectors that will grow in importance as the demographic composition of these countries shifts.”

Healthcare real estate, senior housing and social infrastructure are examples of areas where the worlds of real estate and infrastructure intersect. Data centres is another (see pages 4-5).

On page 10, Andrea Orlandi and Valentina Shegoyan look at how increases in operational risk and allocation pressures from infrastructure and private equity are putting property in a tight spot. “Real estate can no longer sit in a silo,” they argue. 

“Real estate continues to perform a productive role in portfolio diversification”, but investors and investment managers need to embrace technological disruption and the greater operational risk inherent in real estate today if it is to remain a “relevant and profitable asset class for institutional investors”.