Schroders Capital’s Investment Outlook for UK Real Estate H1 2024

We explore the fundamentals underpinning our expectations and views, our conviction themes, the investment strategies benefitting from them, and how we are seeking to position portfolios for outperformance

2024년4월15일
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Read full reportSchroders Capital Investment Outlook: UK Real Estate H1 2024
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Authors

Oliver Kummerfeldt
Head of European Real Estate Research

In this Outlook we explore the fundamentals underpinning our expectations and views, our conviction themes, the investment strategies benefitting from them, and how we are seeking to position portfolios for outperformance.

Our Investment Outlook for UK Real Estate highlights the following:

  • UK market value corrections have continued in earnest across sectors and investment structures, generating the deepest falls to date on a global basis. Investors have had to contend with higher interest rate levels, muted economic conditions and heightened geopolitical tensions in recent months, but now have the prospect of accessing UK opportunities on an attractively repriced basis.

  • Inflation in the UK economy has slowed significantly and with the worst of a shallow recession now behind us, the prospects of a faster rebound have improved. Rising (geo)political tensions and a more extended period of elevated interest rate volatility may be weighing on markets, but we feel it's time to strike an optimistic note despite these uncertainties.

  • While downside risks remain, the long-term trends of the ‘3Ds’ (demographics, deglobalisation, decarbonisation) as well as digitalisation are also providing  tailwinds to certain sectors and the  overall outlook is starting to improve as inflation eases and interest rates to peak levels.

  • Occupational markets remain on a solid footing, with nominal growth expected across most segments, especially those supported by structural tailwinds. While demand has softened, tight supply conditions (due to higher construction and debt finance costs) continue to support (sustainable) rental income levels, and the scarcity of high-quality ESG-compliant space will fuel renewed rental growth once the UK economy turns the corner.

  • We believe that 2024 will mark the start of a cyclical buying opportunity due to the extent of the repricing experienced in the UK to date. Investors should remain patient but position themselves to capitalise on opportunities as they emerge on a sequential basis across sectors.

  • According to our proprietary market valuation framework, immediate opportunities can be found across multiple sectors. Several prime property types, in particular in the industrial and logistics and living segments, have now largely rebased to attractive price points which are supported by strong structural fundamentals.

  • UK real estate portfolio compositions are evolving, and the ability to create the ‘core of the future’ across a range of ‘adjacent uses’ to the traditional staples of office, industrial, retail and multifamily, is offering a range of early mover opportunities.

  • Key sustainability and impact considerations should be prioritised which means capital expenditure needs to increase to meet evolving regulatory and tenant requirements.

  • UK real estate secondaries markets are favourably priced and there is a growing need for manager-led recapitalisations alongside strong operators whose balance sheets require capital solutions to de-lever in a higher interest rate environment and/or to facilitate growth.
Read full reportSchroders Capital Investment Outlook: UK Real Estate H1 2024
23 페이지

Authors

Oliver Kummerfeldt
Head of European Real Estate Research

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