Despite a clear shift towards optimism, the real estate investment market still faces challenges and effective asset management will remain paramount going forward, Philip La Pierre, head of Europe and co-CIO Europe at LaSalle Investment Management, said at Expo Real.
Declining interest rates have made debt more attractive for acquisitions and led to improved investment conditions, La Pierre told PropertyEU. Additionally, fixed-income investments are becoming less appealing, making real estate relatively more attractive, he noted.
‘Pricing has also reached bottom and is starting to rebound, which is another positive sign. While market conditions are improving, the question remains whether we'll see a sideways movement or a significant uptrend,’ he said.
La Pierre said that while interest rates are likely to remain low, a return to negative rates is unlikely. This means there will still be attractive investment opportunities, however expecting a return to 2021 pricing levels ‘is unrealistic and may take a long time’.
According to La Pierre, effective asset management will be crucial to creating value in the current environment. This, he said, involves making wise capital expenditure decisions, prioritising sustainability, and carefully selecting specific properties. ‘To cover operating costs and generate returns, you need a certain rental income level. If you own properties in less desirable locations, you'll need to deal with lower rental income and potentially invest to avoid stranding your assets. In contrast, properties in prime locations offer potential for premium rental growth.’
To generate high returns, properties must be able to cover operating costs and generate enough income to reinvest in upgrades and maintain their value. This is similar to what happened in 2010-2012, La Pierre pointed out, ‘which is why LaSalle has focused on asset management, including redevelopment and repurposing, as well as sustainability’.
In terms of sectors, while logistics and residential real estate currently display strong fundamentals, investing in them still presents challenges, La Pierre said. ‘Residential construction remains difficult, and capital investment may not always yield immediate returns.
‘Logistics also faces increased supply, which could slow down the rapid rent growth we've seen. Despite this, the logistics sector remains a positive investment due to ongoing supply chain demands.’
Retail, he noted, has undergone significant repricing since 2017-2018, but certain segments still offer opportunities. ‘Office real estate, while facing challenges, can still be profitable if you focus on well-located properties with strong tenant demand,’ he added.
