Unlocking value in an evolving landscape: Key messages for Europe and the UK

First and foremost, we believe that environmental, social and governance (ESG) factors are at the forefront of every investor’s real-estate strategy. We see value in opportunities that help to reduce environmental impacts and are likely to support long-term values and ensure fair, transparent and inclusive business standards.

We think the office will remain the hub of company operations as well as a major target sector for investors. Workplaces are likely to become more hybrid, challenging investment strategies. The office sector is poised for a comeback in 2022, based on economic recovery, improved occupier fundamentals and the return of liquidity. We identify a polarisation between future-proof assets and the rest. Emerging opportunities for investors are for Core strategies in grade-A buildings in strong micro-locations as well as for Core Plus and value-add strategies which focus on enhancing ESG credentials of older stock. Investors must carefully consider pricing and potential capex requirements. Income streams will be less secure as tenants demand more flexibility and increased fit-out costs. We like multi-let Core/Core plus office buildings near transport hubs in both CBD locations and established city fringe sites in key markets and dynamic regional cities across Europe.

Industrial & logistics remains the preferred commercial real-estate sector for investors. We expect another year of outperformance of investment volumes. We continue to see compelling value in buying and creating modern, flexible multi-let Core and Core Plus logistics and industrial facilities in the key European logistics hubs. With yields at historic lows, disciplined stock selection and active strategies through Manage-to-Core and Build-to-Core are the best ways to generate sustainable returns and rental growth. Pricing and valuations are increasingly challenging. Investors need to be more sensitive about rental growth assumptions and navigating risks around overpricing, supply and obsolescence. We strongly believe that the mid-box segments such as urban and last-mile logistics, light industrial estates and cold-storage subsectors offer compelling opportunities for portfolio diversification and higher risk-adjusted returns.

We remain optimistic that the retail sector will rebound in the medium term. We continue to see selective investment opportunities. We like daily goods and grocery retail formats such as supermarkets and food discounters, as well as larger food-anchored retail parks in European urban areas. We think investors should consider strong income-producing opportunities in value and convenience retail parks and retail warehouses in strong micro-locations.

The residential sector offers both diversification and durable income streams, underpinned by demand and supply imbalances. ‘Living’ does not face the technological disruptions of the commercial sectors. Rent collection levels have remained robust – everyone needs a home and they typically want more space. The sector is maturing rapidly and this presents significant opportunity for investors across borders and the risk spectrum. We are most focused on scalable, operationally light segments, particularly multi-family and PBSA.

Finally, we believe that real estate Debt investing continues to provide attractive risk-adjusted returns with downside protection from an underlying income-producing asset.