SUMMARY

At the beginning of 2023, our real estate subsector leaders shared their insights on what headwinds and tailwinds they expected for the industry in the coming year. As a follow-up retrospective, we asked the subsector leaders to take another look at what challenges or wins the real estate industry underwent over the last nine months, and what they expect from the rest of the year. These insights help us to determine impacts on our industry, practice, and most importantly, our clients.

HOTELS & HOSPITALITY

HEADWINDS:

• Interest rates, inflation and slowed financing have suppressed US and European markets for the last 12 months causing signs of stress.
• In APAC, Vietnam and Thailand are facing challenges from oversupply but this is also leading to some portfolio investment opportunities.

TAILWINDS

• US hotel owners and operators remain optimistic. The economy has remained resilient and wage growth is keeping up with inflation.
• UK hotels are performing strongly, with luxury hotels proving to be a successful inflation hedge.
• France is performing well, with the Rugby World Cup and Olympics around the corner.

PRIVATE EQUITY

HEADWINDS

• Higher debt costs and rate unpredictability make desired returns uncertain and difficult to achieve.
• “Flight to quality” invites oversized competition between potential investors/buyers for Class A product.
• Mismatch in pricing expectations remains as buyers wait for distress/re-financings and sellers keep their powder dry.

TAILWINDS

• Providing alternative debt opportunities
• Pivoting to less traditional asset classes and more creative deal structures
• Being able to move capital quickly during a bear market by acquiring product at relatively low prices

LOGISTICS

HEADWINDS

• A transition to more environmentally friendly buildings will be costly and make many existing buildings quickly obsolete.
• Interest rates and terms continue to impact the availability of finance.
• Competing sectors may attract a larger percentage of available investment.

TAILWINDS

• Supply remains strong but there’s a shortage of good grade logistics and industrial stock.
• Vacancy levels remain low and demand is holding up.
• The nearshoring trend benefits this sector as geopolitical uncertainty and supply chain issues drive demand for logistics space.
• Architects and developers are finding creative ways to use AI and automation technologies when designing industrial buildings closer to city centers.

LIFE SCIENCES

TAILWINDS

• Remains strong as an investment destination and is a robust growth area short to medium term.
• The UK has a thriving life sciences economic environment with government launching a £650m incentive growth package.
• A record number of new businesses are springing up meaning occupier demand and rents remain high.

HEADWINDS

• Decrease in deal volume caused by supply shortage of high quality sites and lack of speed and flexibility in the planning process.
• Healthy development pipeline as space becomes available - valuations and returns may start to soften.
• Debt finance is typically available however current interest rates will dissuade certain investors.

HEALTHCARE

TAILWINDS

Retirement Living

• Existing living investors expected to diversify into or increase their exposure.
• Overseas operators and developers expanding to the UK and seeking long term funding partners.
• Launch of the Older People’s Task Force and expectation of legislative / regulatory reform.

Care Homes

• Opportunities for European consolidation opening up.

HEADWINDS

Retirement Living

• Government has not committed to a deadline for response to the NPPF Consultation, risking insufficient time to implement meaningful change.
• Concerns that the requirements of biodiversity net gain are a level of complexity that Local Planning Authorities are not geared-up to handle.

Care Homes

• Risk of further closures as mortgage rate increases compound existing headwinds.
• Impact of Minimum Energy Efficiency Standards Regulations.

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