Amid a slower-growth environment overall globally, investors will focus on the relative outperformers. This relates to sectors, geographies and business models that are in the path of growth, whether structural or cyclical. Opportunities are emerging now in real estate’s growth sectors and will continue evolving through the next cycle.

Investors will continue to focus on sectors that are less mature across markets in terms of share of investment, such as logistics and living. And beyond that, key alternative sectors such as data centres and life sciences are on global investors’ roadmap. This reallocation will present an opportunity for diversified, stable income streams and higher returns.

Industrial & Logistics

Logistics will grow globally driven by structural and behavioural shifts in consumer patterns and increasing reliance on supply chains. Near-shoring and the need for domestic supply chain resilience will create further opportunities in more developed logistics markets: In North America with particular growth in manufacturing, in Europe driven by urban logistics, and in Asia-Pacific the continuing e-commerce boom amid urbanization and dense large population centres. The increasing importance and resilience of supply chains will impact all markets.

Living

The living sector is experiencing growth for many reasons. Global populations are growing and becoming more urban, meaning cities require more homes, with a broader range of household types and sizes needed. Innovative living solutions will provide some new supply to meet this demand. Further institutionalization of the sector will be driven by Japan, China and Australia in Asia-Pacific, and parts of Europe including the UK, France, Spain and Italy, where market maturity remains well below the current levels of the US and Canada. Capacity for institutional beds is high and supply is low, creating significant opportunity. Student housing and single-family rental will also be growth areas.

Data Centres

Data centre development and investment are currently dominated by specialist players, but large institutional, cross-sector investors are increasingly seeking exposure due to long-term growth potential. Cloud-based data storage and processing are growing consistently, and AI adoption is accelerating this, but growth is currently limited by supply shortages.

Beyond the sectoral strategies covered in the above, the way capital is deployed will continue to adjust in a competitive and higher cost of capital environment. Not only will investors continue to participate throughout the capital stack as lending markets stabilize, but a broader set of strategies, both direct and indirect, will be explored.

The current challenging capital market environment and the focus on building long-term assets under management (AUM) has triggered a focus on new investment strategies: Partnerships with operators, whether it be through joint ventures, recapitalizations, platform acquisitions, or other structures, are particularly in focus.

Over the past five years, joint ventures have become a major component of the global real estate market, with between around 10 - 20% of all real estate deals involving some form of joint venture. Investors are increasingly directing their capital towards joint ventures, especially in sectors where access to deal flow is highly competitive. Joint ventures in the logistics and living sectors have grown meaningfully, allowing investors access to more deal flow, expertise, risk management, and scale, and this trend is expected to continue and intensify.