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.

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.

Life Sciences

The focus on life sciences was accelerated by COVID-19 – evident in the exponential growth in life science real estate investment over recent years, particularly in both the US and UK. This sits within broader categories of science & technology / research & development but has gained significant traction. Now, life sciences may be a beneficiary of office repurposing, with a strong potential development pipeline in many global markets. However, a limiting factor for growth could be funding; global VC fundraising has slowed significantly this year. Despite this, large funds still have record dry powder, so optimism remains that start-ups will continue to access finance in their drive for continued growth.

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.