Our survey gathered perspectives from a diverse group of real estate investors and managers, including REITs, sovereign wealth funds, pension funds, boutique funds, family offices, and high-net-worth individuals. This broad range of respondents provided a nuanced view of the market, capturing the sentiment and investment themes they anticipated would drive the industry forward in 2024.
Key findings
- Valuation and interest rates: H1 of 2024 has still proved challenging for asset managers and developers, with low transaction volumes, continuing uncertainty surrounding property valuations within some sectors, e.g., office, and the expectation that interest rate cuts are being pared back and/or delayed. The ongoing global geopolitical situations in Ukraine and the Middle East, conflated with upcoming elections in the UK, US, and Europe, are also contributing to the uncertainty and cautious outlook. Despite these challenges, anecdotally, the consensus seems to be that H2 will be more positive than H1, but by how much is uncertain at this stage.
- Investment strategies: Nearly half of the survey respondents (48%) planned to increase their allocation to real estate investments in 2024. Europe and the UK were seen as the most promising regions for investment, particularly in the logistics/industrial and residential sectors. It is fair to say that H1 has been slower than expected in terms of capital raising and fund launches. There seems to be cautious optimism that H2 will be more positive. Despite this, credit and infrastructure funds have been more resilient due to their relatively higher return/lower risk profile versus real estate funds.
ESG and digital innovation
The survey highlighted a significant shift towards ESG initiatives and digital innovation within the real estate sector.
- ESG Initiatives: An overwhelming 87% of respondents reported a moderate or significant increase in investor demand for ESG-compliant investment opportunities. This trend is influencing investment selections and leading to adjustments in asset management strategies.
- Digital Innovation: Digital innovation emerged as another area of increased focus, with many asset managers looking to invest in new technologies to enhance operational efficiency.
During H1, we have seen these themes resonate with our client base, as asset managers use this period of low transaction activity to strengthen and implement ESG initiatives within their business framework and investment policies.
Operational efficiency and outsourcing
The survey also identified evolving strategies for improving operational efficiency across business processes.
We have observed significant interest from the industry in outsourced managed services for middle and back-office functions, with fund administration and property accounting being the most commonly outsourced activities. The primary drivers for outsourcing include cost savings, scalability, access to professional skills, and the ability to focus on core business functions. This trend is expected to continue, with many asset managers planning to increase their outsourcing efforts in H2 2024.
As we commence H2, I, for one, am more optimistic that transaction activity will start to increase (albeit from a low base), particularly in markets that have responded more quickly to adjusting property values, such as the UK. As a result, I’m hopeful we will see sentiment improve in the sector for the latter half of the year.
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