Outlook 2024: ‘3-D reset’ will revitalise real estate markets

Thematic investment driven by secular trends will signal the upturn in real estate markets, delegates heard at Real Asset Media’s Outlook 2024: Key Trends & Opportunities briefing, which took place yesterday at Schroders Capital’s offices in the City of London.

“The 3-D reset – deglobalisation, demographics and decarbonisation – will have a real impact on the market,” said Oliver Kummerfeldt, head of European real estate research, Schroders Capital.

Deglobalisation is a big trend that is deepening disparities in demand between and within related sectors, such as logistics that is seeing the benefits of re-shoring.

Demographic trends, including ageing populations across Europe, will increase demand for different types of living products, such as senior housing, care homes but also multifamily, microliving and student housing.

The growing emphasis on “people places and planet”, as well as increased regulatory and industry standards, are increasing demand for ESG-compliant assets, repurposing and regeneration, as well as social and affordable housing.

“These themes offer very interesting strategies in logistics, living or alternatives,” said Kummerfeldt. “Some are very operational so you need a partner and you need to understand the business model, but if you get it right it’s a great move.”

The markets are betting on stability returning this year, as inflation is coming down and interest rate cuts are expected before too long.

“Investment market activity is still muted, but opportunities are starting to emerge,” he said. “As the JLL bid intensity monitor shows, towards the end of 2023 there were very positive signs of activity spiking up, especially in the logistics and living sectors, but there is still quite a big spread between sellers and buyers.”

There have been few distressed sellers so far and there’s no mood for fire sales, but prices have come down. Looking at European transaction pricing figures, by the end of 2023 office prices had declined by 36% compared to Q2 2022, industrial and logistics and residential prices by 23%, and retail by 12%.

“We see fair value in many segments now,” said Kummerfeldt. “While it’s true that no one wants to catch the falling knife, it’s also true that historically investing after a downturn, such as the dot-com bubble or the GFC, has delivered superior returns.”

There are historical precedents as well as current reasons for choosing to take the plunge now. There is plenty of capital ready to be deployed, but so far most investors have chosen to be cautious and sit on the sidelines.

“It’s easy to be pessimistic at the moment, but we really believe new real estate opportunities are opening,” Kummerfeldt said. “The noise will continue and uncertainty and volatility will still be with us for months, but it is a very exciting time.”