Schroders Capital today unveils its inaugural Investment Outlook for real estate which provides an overview of its key investment conviction themes and how the real estate team is seeking to position portfolios for medium-term outperformance.
Schroders Capital’s new Investment Outlook will look to answer clients’ central questions about the real estate investment landscape amid challenging market conditions, explore potential risks and also the emerging opportunities to capitalise on.
The outlook encompasses the key fundamentals directly and indirectly impacting real estate markets, the implications of the repricing which has taken place since the third quarter of 2022, inflationary pressures and the interest rate volatility impacting both tenant and investor activities.
Although Schroders Capital’s real estate team anticipates 2023 to remain challenging especially in fringe markets and for secondary assets, it is optimistic that the repricing has already created attractively rebased investments which should result in a broader buying opportunity this year.
This is set against a backdrop of occupational markets remaining well supported by tight supply conditions which are expected to persist given elevated construction, restricted debt availability and increasing finance costs.
Schroders Capital believes key sustainability and impact considerations should be prioritised to ensure that portfolios evolve to target appropriate sustainability profiles which meet stakeholders’ demands and rapidly shifting occupier preferences, while also ensuring assets are future-proofed against evolving regulatory requirements.
Kieran Farrelly, Head of Global Solutions, Real Estate, Schroders Capital, said:
“Prevailing market conditions further reinforce our focus on operational excellence as we seek to drive long term, sustainable outperformance for our investments. We believe that all real estate has become operational in nature in that the financial outcomes for investments in assets are aligned with the success of tenants’ businesses.
“We are in a period of transition with the higher interest rate regime emphasising the importance of operational management in all sectors. This should result in a focus on strategies where longer term landlord outcomes are aligned with the success of tenants’ business models.
“Schroders Capital continues to view private real estate debt and public real estate equities anchored by strong operators as offering attractive risk-adjusted value.
“Investors should remain patient but move to a more neutral and less defensive stance, positioning themselves to capitalise upon opportunities as the repricing cycle further progresses and markets recover, with a greater allocation to growth strategies than previously.”
The full report is available for download here.