New cycle under starter’s orders: ‘living’ in pole position

Property market sentiment is slowly starting to improve and Raj Kotecha, chairman, CEO and co-founder, Amro Partners, is of the opinion that 2024 will prove to be the first year of the next real estate cycle.  

“Our expectation is that sentiment will improve, but 2024 will be quite bumpy. It’s the first year of a new real estate cycle so we wouldn’t expect it to be a very steep rising curve,” he told Real Asset Insight’s Richard Betts. “But we can see some positive trends coming along.”

The macroeconomic picture is much more positive than it was four months ago, Kotecha added, interest rates have peaked and the debate now is about when the first interest rate reduction will occur.

Amro Partners’ focus is the European living sector which he said is getting a lot of attention, and for the right reasons. “Whether we look at multifamily or student housing, the sectors have proven themselves, from the occupancy and rental growth perspective, to be very defensive. I think that stands in contrast to what have been the core sectors of the past.”

“We’re certainly in conversations with investors and seeing a lot of appetite for reallocation from office in particular to living and logistics. We think in this cycle we’re going to see that happening at quite significant levels.”

The picture does vary across Europe. “We’re seeing very compelling opportunities in Germany because Germany has repriced very significantly and from a returns perspective as well as from a deal flow perspective there are very compelling opportunities in the PBSA space.”  

Although there has been some repricing in Spain the market there has not had the same degree of distress or dislocation which he said is a function of Spain going into the recent interest rate correction with much less gearing than was the case during the GFC. Conversely, Germany was much more highly geared.

The UK has gone through its repricing and “is presenting very interesting opportunities”, Kotecha said.

“Our focus there has been the London market. We think London is highly defensive and we think for a defensive global city like London, returns available today are really very interesting.”

Looking at the sub-sectors of the “living“ category, Kotecha said that senior living is not an area in which Amro is active, “but I’m sure it’s a sector that will continue to evolve”.

“If I had to pick a single one of those [sub-]sectors in terms of what’s resonating with investors, I think student housing is getting a lot of  time and attention,” he said.

Investors have seen student housing evolve in the UK and the US, where it is now very mature, before that. “The expectation is that the continental European markets will go through the same evolution of the student housing sector, so from the conversations we’re having, student housing tends to be in the top two or three on the wish list of things to deploy.”