Capturing the Anticipated Upside in Real Estate

21 February 2024

Suntera Global’s Ian Horswell, Global Head of Business Development – Funds, explores some of the recent trends in the real estate space and what lies on the horizon for the asset class…

What sort of impact has the high interest rate environment had on the RE sector?
There’s no doubt the past 18 months have been difficult for the real estate sector. The persistent high interest rate environment has put significant downward pressure on financing, created uncertainty in terms of asset valuations and ultimately impacted transaction flow. We’ve seen that right across the spectrum in the UK, Europe and even the US market has been suppressed.

We’re still seeing the outcomes of that impact now. Although there is light at the end of the tunnel, the inactivity of the past year or so has meant that managers are still being forced to sell at valuations they previously might not have accepted, just to maintain some liquidity and give them some leverage for more immediate activity.

So where are the areas of opportunity for real estate as we look into 2024?
With interest rates plateauing and the prospect of rate decreases on the horizon, there is more optimism in the market, and we are already seeing indications of a bounce in the US, as well as a bit more movement in the UK and Europe. The sector is by no means thriving, but there is definitely more anticipation amongst investors, who are readying themselves to seize opportunities when market conditions allow.

Investors are pivoting their strategies as they move into areas where they are anticipating movement – especially those investors who have been sitting on cash and will be ready to move quickly. They are looking at the more dynamic areas of the asset class. Assisted living and student accommodation, for instance, are areas where there is apparent interest, a direct response to demographic shifts and persistent demand. There’s also movement in data centres, as the development of the infrastructure underpinning the technological revolution continues at pace.

What sort of impact has flexible working had on investment in commercial real estate?
What we now see as the typical office environment is not what it was ten years ago. The rise in flexible working post-pandemic has meant that the demands on office and commercial space are now very different. Less overall space is needed, but that space needs to be cutting edge and factor in criteria such as wellbeing, flexibility and sustainability. So developers are looking at adjusting their projects in that light, to meet long-term investor objectives.

In addition, in some cases, outdated or excessive office space is being converted to residential, where there is more opportunity. That takes a lot of planning and resource at the research stage, but there’s a definite trend there. 

You mentioned sustainability – how is that being factored into real estate investment decision making?
Sustainability is being factored in in different ways, it’s a major trend shaping the market. Definitely there’s more of a focus amongst investors on ESG factors in developments given there is an increasing need to meet standards, such as the Minimum Energy Efficiency Standards (MEES) and a drive by investors to request managers meet non-compulsory standards too.

It’s no longer just about asset yield for investors either. Investors are also looking all along the supply chain, and how sustainable that is in terms of the workforce, materials and so on. That takes a lot more resource and administration to capture, manage and disclose all that information and data effectively.

What does this mean for the Channel Islands?
The characteristic of uncertainty in the global real estate space, although having been problematic in terms of transaction and deal flow over the past year, is actually something of an opportunity for Jersey and Guernsey. As jurisdictions, they have such good track records in terms of reliability, expertise and stability, that when the green shoots start to appear as we anticipate in 2024, they will be amongst the first places to realise that beneficial movement. That won’t be the case with all jurisdictions.

There’s also a sustained interest in the real estate space from private capital and family offices in particular. They are now major impact players in this space, and the fact that Jersey and Guernsey have such well-established private wealth and family office sectors, there’s a significant opportunity to capture that upside, for cross-selling and multidisciplinary support, to enable that private capital to be put to work in high quality real estate opportunities.

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