The economic backdrop resulted in a pricing standoff between buyers and sellers, adding complexity to the market. However, optimism is growing for a more favourable 2024, with hopes that monetary policy will loosen and enable a return to more stable pricing and increased transactions.
The global pandemic served as a watershed moment for the real estate industry, prompting major and ongoing changes to how people work and live. Some regions have witnessed significant shifts away from the traditional office-centric model, affecting demand for office space in certain locations, while changing behaviours are broadening the use of residential real estate. Industrial assets are well-positioned to gain from the ongoing digitalisation of society, while data centres are poised to benefit from the surge in demand from the growth of artificial intelligence and cloud services.
Against this evolving landscape, the Real Estate Department (RED) capitalised on its mandate flexibility to seize opportunities across various modes of access in 2023. Among these, it executed deals within listed real estate securities, including the privatisation of a U.S.-based industrial REIT.
The Department continued to expand its private credit exposure, positioning itself to capitalise on the retrenchment of banks from parts of the real estate sector and improved market pricing. In 2023, it further expanded its credit platforms in the U.S., Europe, Australia, and India, while also strengthening relationships by anchoring funds.
RED’s hospitality exposure benefited from strong fundamentals fuelled by an increase in travel spending, despite recessionary fears in certain markets. The Department took advantage of market dislocation and special situations to make value-add acquisitions. These included investments in a 24-hotel Spanish portfolio and a portfolio of 27 resort hotels in Japan.
In the residential space, the Department continued to build its U.S. student housing platform to meet strong demand from growing student populations. It also grew its exposure to the European residential market, where affordability pressures and demand for housing are driving rent growth despite higher funding or development costs. This included backing existing residential platforms in the U.K. and the Netherlands to capitalise on market dynamics and identifying potential dislocation to invest in growth sectors at attractive points in the cycle.
The Department invested in collaboration with its established core relationships while selectively bringing aboard new partners to target evolving market themes.
RED continues to make selective hires to bolster its capabilities. In 2023, this included the appointment of Pritesh Patel as Head of Americas, with targeted recruitment expected to continue in 2024.
Looking ahead, the Department’s investment strategy will continue to emphasise adaptability, sustainability, and a forward-looking approach. To this end, it is prioritising the ongoing development of its data analytics capabilities, from a portfolio management and market intelligence perspective. By honing these skills, the team is able to acquire valuable insights that contribute to a more nuanced understanding of shifts in market trends. These views are also used to anticipate and adapt to evolving market conditions.
