Manifest Destiny
“Manifest destiny” animates America’s idea of exceptionalism, a term President Trump invoked during his inaugural address last week. The Cambridge Dictionary, looked up almost 130,000 times last year, chose "Manifest" as its ‘word of the year’. Etymologically, manifest often relates to attitudes or feelings, frequently negative ones; however, in recent years, its usage has shifted towards more positive contexts, associated with words like dream, goal, and success.?
Europe appears to remain associated with the former, negative connotations, of 'manifest,' burdened by persistent economic challenges. According to Goldman Sachs’ ‘Euro Area Outlook: Under Pressure’ report, 2025 is set to be another challenging year for the Euro area economy. Expectations are constrained by US President-elect Trump’s proposed tariffs, which are likely to weigh heavily on growth due to heightened trade policy uncertainty. Structural headwinds in the manufacturing sector, such as persistently high energy prices and intensified competition from China, are expected to exacerbate the economic strain. Ongoing fiscal consolidation across the Euro area is forecasted to further dampen economic momentum, leaving the region’s recovery dependent on structural reforms and external demand.
Real estate investors, however, have embraced the more positive outlook of 'manifest,' with sentiment in the European real estate market remaining optimistic despite macroeconomic challenges. Investment volumes reached €206bn in 2024, a 23% increase from 2023, according to CBRE. The fourth quarter alone saw €68bn of investments, marking a 32% year-on-year increase, reflecting a shift in confidence and sentiment across the continent. Sector performance was led by hotels, which recorded a 34% year-on-year increase in investment volumes, driven by expectations of a sustained tourism rebound. The living sector followed closely with a 29% increase to €46bn, emerging as the most preferred asset class in Europe for the first time. Logistics, offices, and retail also saw significant increases. The UK and Germany posted strong annual growth at 23% and 21%, respectively, while larger markets like Sweden, Italy, and the Netherlands outperformed, with growth rates of 58%, 47%, and 36%, respectively.
Barclays’ ‘Real Estate Outlook 2025’ highlighted the growing confidence in real estate markets, with expectations for steadily rising transaction volumes driven by narrowing bid-offer spreads and increased alignment in market expectations. Macquarie echoes this optimism, describing real estate as “the most beaten up and unloved of the major equity asset classes” but well-positioned for a turnaround. According to their outlook, Real Estate, as an asset class, has historically shown high sensitivity to interest rates and is expected to benefit significantly from the anticipated decline in rates over the next 12 to 24 months. With global real estate returns closely correlated with overall economic growth, the combination of lower interest rates and healthy macroeconomic conditions is poised to create a particularly favourable environment for this sector.
Historical data from Preqin underscores that funds deploying capital during periods of elevated volatility, such as the aftermath of the global financial crisis, achieved some of the strongest returns. This trend is expected to repeat in 2025, as rising stress levels in the US and Europe create opportunities to acquire assets at discounted prices. Additionally, the sharp reduction in construction activity across many markets is mitigating oversupply risks and strengthening valuations.
Private equity property funds raised the lowest amount of equity in more than a decade in 2024, according to Preqin data analysed by Green Street News. Despite this decline, fund managers remain optimistic, with many expressing confidence that 2025 will see improved conditions for capital raising. Aggregate capital raised in 2024 amounted to $108.71bn, marking the lowest total since 2012, when $95.07bn was collected. Additionally, only 607 funds closed during the year—the lowest number since 2015, when 606 funds were finalised. In contrast, 2023 saw 645 funds raise a total of $157.53bn, with Blackstone Real Estate Partners X contributing over $30bn, making it the largest real estate fund ever. The average time required to reach final close has also continued to lengthen, with fundraising periods stretching to a record 24 months in 2024—the longest since Preqin began tracking this data in 2000. For context, the average fundraising period has steadily increased from 15 months in 2016 to 22 months in 2023, reflecting growing challenges in securing investor commitments.
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The ‘2025 Real Estate Outlook: Tipping Point’ by MetLife Investment Management asserts that real estate values are past the trough, marking 2025 as the start of a new cycle. Inflation-adjusted price trends highlight that assets are undervalued, creating compelling opportunities for early movers. Early-cycle investments historically deliver strong returns over a 7–14 quarter window, with mispriced trophy office properties offering particularly attractive prospects. By 2026, top office assets are expected to rival residential and industrial properties in investor favour. The durability of positive returns in recovery cycles is further supported by real estate yields exceeding triple-B bond yields by around 200 basis points, indicating attractive pricing.
M&G’s ‘Global Real Estate Outlook: A New Chapter Begins’ reinforces this perspective, positioning 2025 as a pivotal year driven by stabilising valuations and rising investor confidence. Structural tailwinds, including constrained supply and increasing demand in sectors such as logistics, residential, and premium office spaces, are expected to underpin performance. M&G also highlights opportunities to reposition assets through "brown-to-green" strategies aligned with decarbonisation goals, unlocking additional value. Resilient subsectors, like urban multi-let housing and logistics assets with strong ESG credentials, are poised to outperform due to robust tenant demand and favourable market dynamics.
According to the 2025 ‘Natixis Institutional Outlook Survey’, institutional sentiment towards real estate is notably stronger in 2025 compared to 2024. Confidence in residential real estate rose from 33% in 2024 to 56% in 2025, with similar gains in non-traditional real estate (31% to 46%) and commercial real estate (20% to 39%). This optimism aligns with broader portfolio strategies, where real estate continues to hold a steady 20% share in alternative allocations for both current and long-term targets, as illustrated in the Natixis projection. The bullish outlook reflects growing confidence in the sector's potential to deliver stable returns, supported by falling interest rates, strong demand fundamentals, and a renewed focus on sectors like residential and logistics. Institutions are strategically positioning themselves to capitalise on this anticipated growth, leveraging early-cycle opportunities to gain competitive advantage.
The ‘Time to Talk About Real Estate Debt’ report by CMS however paints a more complex picture for 2025, shaped by higher-than-expected interest rates. UK five-year sterling swap rates remain at 4.5%, significantly higher than the euro equivalent of just under 2.5%, which has muted transaction volumes. Despite this, Loan-to-Value (LTV) ratios have remained stable, with some revaluations leading to increased LTVs. Interest Coverage Ratios (ICR) have become a key constraint for borrowers, with lenders focusing on interest reserves in some cases.
The report does highlight resilience in prime, sustainable office spaces and data centres, where strong demand continues to drive growth despite sector-specific challenges. Liquidity in gap finance markets has limited distress, but lenders are expected to become more selective as short-term extensions expire. Additionally, opportunities in mezzanine funding remain competitive, particularly in office properties, where returns of 16–18% are achievable.
Ultimately, investors should manifest calculated optimism, a mindset that separates those who seize opportunities from those who miss them. As the market navigates uncertainties, investors who act decisively, leveraging strategic insights and focusing on resilient, high-demand sectors, are well-positioned to capitalise on the next phase of growth.
Senior Managing Director | Head EMEA Capital Markets
1 个月Nice article Jonathan
Partner at Beachrock
1 个月Another excellent overview Jonathan which coincides with what we are seeing on the ground. Some solid deals in 2024 but I anticipate more activity/liquidity into 2025 Several new funds are doing the rounds at the moment and have significant firepower. They are looking for institutional quality clean&green assets with track record. Stock is sensibly priced at the moment and they know it. But another interest rate reduction in Uk may well prove to be the inflection point for investor confidence.