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Real assets markets roundtable: Q1 reflections
by Dr. Andrew Belt
reading time: 14minutes
10. April 2024
With the first quarter of 2024 completed, what is the mood of the real assets sector? Which asset classes are most attractive to investors and which are they shying away from?
Where better to gauge investor sentiment at this juncture than at MIPIM – a four-day real estate conference in Cannes, this year attended by around 21,000 property professionals – and the Infrastructure Investor Global Summit – one of the key infrastructure networking events held in Berlin.
Fortunately, these two events take place next to each other in the middle of March and are well attended by PATRIZIA, serving up useful takeaways from the first quarter to take into consideration for the rest of 2024.
We checked in with Mahdi Mokrane – PATRIZIA Head of Global Investment Strategy, Research & Investment Solutions – and Konrad Finkenzeller – PATRIZIA Head of Global Client Solutions – who attended MIPIM, and also Tom Maher – PATRIZIA Infrastructure Managing Director – who attended the Global Summit, for their thoughts on investor sentiment at this point in the year, with learnings from the two events a prominent feature of the discussion.
Konrad Finkenzeller, PATRIZIA Head of Global Client Solutions
Konrad Finkenzeller: The emergence of value-add as an attractive strategy for the new economic cycle was identified last year. This is still very much the case and most investors remain focused on value-add and even opportunistic, as opposed to core.
Tom Maher: This is something we are definitely seeing in infrastructure too, so much so that it naturally provokes the question: is core dead? Not quite. Core will live on, but other strategies are stronger right now.
Konrad Finkenzeller: Repriced core, however, will come into view at a later stage; not yet, but it’s certainly something we are keeping an eye on. Most investors remain focused on value-add and even opportunistic, as opposed to core.
Strong sectors, office caution and infrastructure’s impact
Konrad Finkenzeller: Residential and logistics, particularly urban logistics, and alternatives are holding sway with investors. There is a growing appetite for living value-add which will favour those companies with a strong track record in residential.
Mahdi Mokrane: We are indeed seeing increased allocations are going to alternatives. Residential is attractive, but remains challenging to create strategies at European-wide levels, unless you are familiar with the specific countries targeted and have boots on the ground to implement bespoke approaches.
Retail, having perhaps hit its lowest possible performance, could be attractive now. There are plenty of opportunities in debt too.
Konrad Finkenzeller: Clients are active on debt, though it’s important to note that they see a 1-2 year window on these opportunities only. One sector clients are increasingly cautious on is the office sector.
Mahdi Mokrane: Here, signals from the US office market are proving instructive. The poor performance in the US, caused by post-COVID working-from-home trends which have now become embedded and structural, is affecting the global real estate picture and there is a negative view on offices further afield, even on office decarbonisation strategies.
Retelling the real estate ‘story’ is important too. What is real estate role in a portfolio? Focusing on the societal benefits of the sector and its innovation, aligned with the challenges caused by the transition megatrends in digitalisation, urbanisation, energy and living certainly supports with the positioning of the asset class, particularly in light of the shift to infrastructure allocations, inspired by what is perceived to be more compelling storylines.
Mahdi Mokrane, PATRIZIA Head of Global Investment Strategy, Research & Investment Solutions
Tom Maher: This shift to infrastructure was keenly felt in Berlin. Competition in the sector is growing with consolidation of platforms, new entrants and internal teams adding to this mix.
Regional trends
Konrad Finkenzeller: There are increasingly active markets in Northern Europe, Canada and Asia-Pacific, with the activity in Northern Europe especially value-driven. The Middle East is very active, though driven by size and scale of investment opportunities. There is less activity and allocation to Central Europe.
Mahdi Mokrane: The geopolitical tensions of course have a bearing and is something many investors were discussing and trying to adapt to. Risk lies in conflict expansion possibilities and misinformation in this unique global election year. Japan and South Korea are seen as possible alternatives to China should investors reallocate their capital away from the country.
As the result of inflation and recessionary risks, interest rates may drop more quickly than anticipated which may provide opportunities.
Tom Maher, PATRIZIA Infrastructure Managing Director
Market consolidation, recovery and momentum
Konrad Finkenzeller: The market consolidation we saw last year will continue as the large number of smaller players face massive headwinds. The financial stability of platforms, therefore, is a key consideration for investors.
Tom Maher: In Berlin, investor sentiment was far more positive than last year. From an infrastructure perspective, Asia and the Middle East were highlighted as the main sources of capital, and fundraising momentum is definitely growing. This shift to infrastructure was keenly felt in Berlin. Competition in the sector is growing with consolidation of platforms, new entrants and internal teams adding to this mix.
Asset quality the focus after current cycle
Mahdi Mokrane: Following the global financial crisis (GFC) in 2008, solvency and risks liquidity were addressed. It was really bad for secondary locations. So, what can we expect from the next cycle? We’d say more private debt and, rather than regional or sector focuses as a holistic trend, the flight to asset quality will move the dial globally.
Addressing stranding and climate risk
Mahdi Mokrane: Decarbonising old buildings remains a big challenge. Partnerships are key to unlocking this problem. Government partnerships are important. Underwriting support is needed from a growing set of experts and specialists that investors and asset owners will be looking to team up with Climate risk is now squarely an institutional risk with stranding risk high on the agenda.
Who is ultimately responsible for decarbonising the assets? Who’s to pay? This is a key talking point right now. Here, investment managers with in-house brown-to-green asset management expertise can achieve more and happily, at PATRIZIA, we are uniquely positioned in having this thanks to our teams and technology.
Tom Maher: Climate risk and the energy transition are a key investor focus in infrastructure. The talking point around this in Berlin centred on how you define the transition. The transition is being defined differently by different participants. Greater clarity in labelling would aid investor decision-making and allow a greater emphasis on the key priority of futureproofing our planet.
