Savills Investment Management (Savills IM), the international real estate investment manager, has highlighted several key sectors it believes offer rewarding opportunities for informed investors in 2024.
Although higher inflation and bond yields provide a challenging backdrop for the sector in 2024, Savills IM believes that real estate will continue to provide highly attractive value creation opportunities for investors through compelling yields, capital protection or capital growth.
Alex Jeffrey, chief executive, Savills IM, commented: '2024 will likely prove to be another challenging year for real estate investors. However, periods of high market stress will present opportunities to those investors with the requisite market knowledge. We see allocators tilting towards living, industrial & logistics, debt and, increasingly, natural capital orientated strategies.'
Savills IM identifies the threats to the near-term macro picture, the most notable being a cautious approach from central banks to inflation.
While interest rates may have peaked, it is likely they will remain higher-for-longer with no respite until late 2024. On this basis, Savills IM believes it is important to focus on fundamentals when identifying opportunities within real estate.
According to Savills IM, the road to net zero and sustainability efforts also remain at the forefront for investors, and measures to reduce buildings’ operational costs and protect against obsolescence due to regulatory demands continue to be an imperative.
Debt opportunities
In terms of strategies, Savills IM believes that now is the time for real estate investors to consider allocations to real estate debt, a sector which is experiencing several supportive trends creating compelling opportunities.
Declining availability of debt financing, real estate yield rerating and rising interest rates have created favourable return conditions for those able to lend.
The downside protection from equity cushions provided by real estate debt are highly attractive to those investors looking for stable and secured income against a backdrop of market volatility and future uncertainty.
Affordable housing
Elsewhere, affordable housing continues to be driven by fundamental supply-demand imbalances across all European markets. Rent affordability is consequently the issue for residents, policymakers, and investors alike.
Prioritising residents will ensure longer tenancies, larger community benefits, and ultimately more stable income for investors.
Urban industrial & logistics
Rents for modern urban industrial and logistics buildings are set to grow strongly over 2024, particularly for those units within or close to the major urban areas.
Across the logistics sector, growth has transitioned from being driven by cap rate tightening to rental growth. Low vacancies and poor-quality existing stock are factors exacerbated in urban areas, where proximity to the end customer is increasingly critical and where suitable stock and land supply is typically falling.
Natural capital
On the question of natural capital, the report remarks that 'the economy is a wholly owned subsidiary of the environment, not the reverse'.
It adds: 'The word “capital” reminds us that nature is an asset which has a value that can be enhanced or destroyed. Nature is invaluable given our reliance on it and its life supporting ecosystems.
'Approaches to reduce greenhouse gas emissions, sequester carbon dioxide and lock up carbon and in turn, create high integrity carbon units, bundled with multiple co-benefits including biodiversity enhancement produce voluntary verified carbon units that can be used to meet net zero ambitions or sold.'
