Real estate and infrastructure allocations are expected to remain stable, according to the latest findings from Crestbridge’s Alternative Managers’ Mood Index (CAMMI).
According to the survey conducted by the private equity and real estate fund administrator, with an index score of 50.00, real estate should see no net change in allocation for the rest of the year.
However, this stability masks an underlying turnover in the market. As some fund managers exit the real estate sector due to factors such as inflation, cost of debt, political instability, supply chain disruptions and the energy cost crisis, others are entering the market, attracted by potential opportunities presented by price drops.
Whilst CAMMI has shown real estate allocations are expected to remain stable, other asset classes such as private debt and growth capital are expected to see significant increases in allocations, with index scores of 71.43 and 66.67 respectively.
Scott McClure, group commercial director for Crestbridge, said: “The CAMMI survey results show an increase in allocations for private debt and growth capital, which indicates that competition for capital is intensifying.
“However, the expected stability in real estate allocations, despite the turnover and reshuffling in the market, is a positive sign and reflects the enduring appeal of the asset class for investors seeking stable, long-term returns.”
The latest results from CAMMI coincide with the recent interest rate hikes from the US Federal Reserve and the Bank of England.
While another interest rate hike increases borrowing costs further, and may again dampen enthusiasm for real estate, it is likely that the market has already priced it in and will show more resilience over the year.
With the recent failure of Silicon Valley Bank and acquisition of Credit Suisse, market participants are asking whether contagion could spread to the UK commercial property market and whether this is indicative of another financial crisis.
Whilst a crisis can never be ruled out, especially combined with a UK recession, market participants are keeping a close eye on key indicators such as macroeconomic trends, property valuations and debt levels.
McClure continued: “It is worth noting that the current environment differs from the period leading up to the 2008 financial crisis, as there are now more stringent regulations in place and lessons learned from the past. It is crucial to differentiate between cyclical downturns and a full-blown crisis.”
Regarding the challenges facing real estate managers, the survey highlighted the importance of talent management, data management, technological innovation, operational efficiency and staying on top of regulatory compliance.
Furthermore, increasing interest rates, inflation, potential economic downturns from both domestic and global sources and changes in the demand for certain types of properties, such as a decline in demand for retail spaces, will pose challenges for the real estate market.
McClure added: “Many of the challenges facing real estate is not unique to our industry but are common across financial services.
“Interest rate rises, The Great Resignation, technological innovation and regulatory compliance are issues that require constant attention and adaptation.”
Despite these challenges, opportunities remain in the UK commercial property market. Areas such as logistics and industrial properties have seen strong demand due to the growth of e-commerce.
Additionally, the continued evolution of flexible office space and the rise of life sciences and technology sectors offer opportunities for investors and developers to capitalise on these emerging trends.
Finally, there remains a significant shortfall in the supply of residential units versus demand in the UK, and addressing this is attracting a lot of interest from institutional capital.
