Real Estate key themes 2023

Transaction volumes remain depressed. Q4 2022 saw the lowest volume of deals since 2010
The market is waiting for asset values to rebase. When this happens, transaction volumes will soar as investors seek to catch up on deployment
There is a clustering of interest in alternative asset classes that benefit from macroeconomic tailwinds with a bias towards “living” sectors, such as student accommodation, multi family, single family and senior living
Interest in the logistics space has cooled in recent months as valuations have fallen. Occupier demand and operational profitability, however, continue to outperform, and the sector remains in favour for high conviction investors
Geographically, there is a bias towards the more professionalised markets of Northern Europe, particularly the UK, Ireland, Germany, Benelux and Nordics

Talent implications

Over the past few quarters, hiring volumes have decreased in line with capital raising and transaction volumes
Acquisitions hiring has all but ceased in the current environment
There is an increased emphasis on hiring talent with asset management capability as funds focus on maximising value within their existing portfolio
Larger groups, such as Goldman Sachs Asset Management, are in the midst of redundancy rounds. Other groups are repurposing their acquisitions professionals to focus on asset management and capital markets whilst the investment market is quiet
When investment activity returns, the paradigm will shift at speed as businesses fight to plug gaps that have emerged
Groups with appetite to hire right now will benefit from decreased competition and a unique opportunity to extract high quality candidates from businesses that are not set up in the right way for the upcoming cycle

Credit and Special Situations investors are having a different experience from their equity counterparts. These groups have been active in the corporate bond market, broken capital structure situations, and broader private credit
The alternative lender community has grown significantly in the past 24 months with new entries from AllianceBernstein, KKR, Ares, Cerberus, Schroders, Tristan Capital, Fiera Capital and PIMCO. These groups have been cautious to commit capital in the past few months but see a big investment opportunity upcoming once deal activity returns
Many of these groups have been UK centric in their lending to date and see continental Europe as the next frontier for their business

Talent implications

There is more hiring momentum in this pocket of the market
There are a number of high-quality senior investment seats coming to the market in 2023; either with US businesses looking to hire someone to launch a European strategy, or with existing European PE groups looking to launch a credit strategy
Funds are also hiring capital market professionals in greater numbers. We anticipate this trend continuing as the cost of borrowing remains a central concern

Capital raised for global real estate strategies declined by 25% in 2022
Appetite for the asset class has been dampened by the aforementioned lag in rebasing of asset values and the negative denominator effect caused by public market volatility
Reups comprised the majority of allocations in 2022. Experts predict that this will change in 2023 as Limited Partners (LPs) apply increased scrutiny to manager performance. This could provide an opportunity for new strategies to come to market, unencumbered by difficult legacy portfolios
Until recently, real estate was being used as a proxy for fixed income, which is much harder to justify in this higher rate environment. Raising for core strategies has consequently become more challenging
Risk adjusted returns are in focus. Debt strategies provide a particularly attractive opportunity in today’s climate. Managers in this space have increased their target returns without taking any additional risk. There is some debate around where this strategy sits from an allocation perspective: capital raisers find that they are often passed between real estate and credit investors when raising for these strategies

Talent implications

Client facing functions are being built out and upgraded
Much of the hiring in this space has centred around larger institutions hiring in specialist capital raising capability
There is a particular focus on DACH and Middle Eastern distribution relationships

Written by Imogen Moon

Building a culture of delivery and collaboration: A strategic approach