Private capital: Real estate investment trends to expect in 2024

The real estate market remains in a prolonged reset, as pricing and capital raising adjust to the new macroeconomic normal. 2023 was a slow, cautious market with deal volume down from its recent peak.

The headwinds will not abate any time soon. While many may be crossing fingers and toes, it looks like interest rates will remain inflated and geopolitics will cause investment friction, with political division and uncertainty at home beyond next year’s general election and conflicts worldwide continuing.

‘Real Estate: the 2024 edition’ is, therefore, going to look quite familiar: a dislocated market with investors scouring opportunities and scrutinising assets like never before. Once secured, creativity and patience will be key in terms of arranging longer term financing.

It certainly won’t be all doom and gloom. We are seeing and hearing from clients that there will be opportunities for value-creation through diligence, commitment to strategy and being structurally agile.

Thematic investing will remain en vogue, deploying capital into assets with strong fundamentals underpinned by socio-demographic forces. Look out for long-term strategies of building platforms in senior living and purpose-built-student-accommodation (PBSA) in particular. PBSA has taken the plaudits of late, but the relative dearth of quality retirement offerings cannot sustain our ageing population for much longer without significant investment.

The knowledge gap in life sciences real estate is being filled. This, coupled with the UK Government’s committed fanfare to investment in biotech, should generate meaningful interest in the sector. Having the right market connections and making smart, skilled partner selections will be crucial for those committed to this sector.

In choppier waters, the stresses with availability of financing solutions will exacerbate. Something has to give with trillions of real estate debt maturing in the coming years. An increase in debt maturities isn’t necessarily problematic, but it certainly is if you’re refinancing cheap debt with more expensive debt backed by assets with depleted valuations.

This kind of stress will be fertile ground for opportunistic investors looking at real estate capital solutions to plug the funding gap, via financing loan repayments, short-term liquidity needs or even plugging capex holes for developments. Expect to see hybrid solutions, with a mixture of debt and equity investment structures being utilised. Such special situations investors could be relatively well hedged between a strategy of meaningful short-term returns on the debt side with longer term equity growth.

Investors will pounce on forced sales, where these stresses force owners into a corner, with discounted sales for a liquidity solution.  Again, investors leaning on well-selected operators will be key, with cheaper entry prices and an intensive asset management strategy to boost returns.

For us in the PERE team, this is the market where we thrive. Working across the risk spectrum with our clients in all investment types and structures, from core to innovative capital structures in special situations real estate. Our understanding of real estate as an asset class from the asset level, to the equity/debt investment, makes us well positioned to help clients navigating a fragmented investment landscape.

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