Opportunities open for real estate as macro-signs improve

The macro context for the real estate market is still “very noisy” according to Oliver Kummerfeldt, head of European real estate research, Schroders Capital.

There is still a lot happening in the geopolitical space and there are a lot of elections coming up, “so it will remain a noisy year,” Kummerfeldt told Real Asset Insight’s Richard Betts.

But there is some good news. “Inflation has come down significantly. It is still elevated but it’s definitely closer to central bank target rates,” he said. “There’s still a bit of concern about core inflation but the fact that it has come down is very positive for the real estate market.”

Inflation did put pressure on businesses and consumers so economic growth will remain subdued but the fact that it is reduced gives central banks some head room to consider rate cuts in the future.

And there is a window of opportunity opening for real estate investments, he said.

“Interest rates have been stable for a while and we’ve seen significant corrections in the value of real estate,” he said. This provides an interesting entry point to the market for real estate investors, and there is capital available.

“If you look at fundraising there seems still to be a lot of dry powder waiting to be allocated into the market.”

Nor is the lending market closed. For the right type of product there is debt available.

Nevertheless, it is necessary tobe selective: “It is a lot about stock picking,” Kummerfeldt added.

In terms of sectors, he said that may people brush off offices. “I do believe that the office has a future. It has to be a well-located office and an office with a lot of amenities, an office of very high quality which is actually quite scarce in many markets.”  

There still plentiful demand for logistics assets, fed by the macro trends, and the living sector is very very active and plays to longer term themes like demographics.

“Even in retail, which I think a lot of people have not looked at for quite a while, you have selected opportunities in the form of retail parks or supermarkets, and we have seen a significant correction in shopping centres. Maybe it’s time to think a little bit harder about whether there is a future in shopping centre investment, selectively.”