Against the backdrop of a turbulent year in most sectors, the commercial property sector has seen it’s fair share of price fluctuations and uncertainty across all asset classes, investor appetites and economies. While the global financial crises have targeted Europe’s markets, real estate investors have been caught by extreme turbulence with the war in Ukraine, soaring energy prices and global political instability on the rise.
Pointing to the cause of this upheaval are factors such as supply chain turmoil, geopolitical disorder, inflation, and reversal of interest rates. The effects of which have caused European Central Bank to raise interest rates after 11 years of staying afloat, which is predicted to endure through 2024.
A tale of two halves
Europe’s Global Financial Crisis was a daunting period to real estate investors, with the sector depreciating by almost 20%. The residential sector was also affected. However, many clients I speak to do not compare the current European crises with the Global Financial Crises; mortgage lending standards have improved, equity buffers are more robust, and debt securitisation is much less widespread.
Yet, as property prices have recently fluctuated, post-pandemic saw a sharp increase in mortgage rates, fiscal assistance, and excess cash savings. Ultimately, it skyrocketed property prices across developed markets. While the UK experienced a rise of 20% in the post-pandemic era, it ranges from 27% to 30% in Germany, Netherlands and Sweden. Some investors I speak to feel there may be a price correction, but those who do, by not much.
Alternatives as an attractive alternative
So, how did alternatives become the savior to real estate investors? What role can the sector play in generating secure returns for investors at a time of high inflation and widespread volatility? And what impact will this have for real estate firms looking to bring on senior talent? Since European Central Bank has increased interest rates, appetite in the Alternatives Sector has increased, with many feeling they offer a much-needed “lifeboat” to rescue the real estate sector. However, will they be able to secure returns for real estate investors, and that too, with such looming inflation and instability?
A plethora of European real estate investors now seek to capitalize on the market dislocation, offering greater scope for returns than other traditional asset classes in the commercial sectors. Factors including resilience during downturns, enhanced inflation protection and value-add opportunities are among some of the benefits of alternatives. Being alternative by their very nature means that fewer investors are targeting investments; a fragmented playing field with smaller lot sizes and suboptimal operations all suggest that more opportunities arise for PE players who want to generate active returns.
Senior housing, student accommodation, data centres, self-storage, flexible workspace, hotels and healthcare assets offer attractive value-add returns while being resilient across economic cycles. Indeed, listed alternative REITs are trading at a premium globally according to Morgan Stanley. Public market investors are “throwing their weight” behind alternatives, persuaded by resilient demand, strong supply, and greater protection from inflation than other asset classes.
The impact of having the right time team
It is no secret that behind every successful PE or investment management operation is a strong leadership team to power the engine. These may be Asset, Fund, Investment, Portfolio, Development or Risk/Reporting Managers. They may have C-suite, leadership or board level experience; superb strategic vision; outstanding analytical skills or the ability to problem solve. They may have a proven track record in the alternatives sector and their vision may closely align to yours. As the demand for alternatives grows, so too does the demand for candidates with relevant experience and the talent pool becomes even more competitive. An increasing number of clients I work with require a proven track record in which ever field they are looking to fill. Engaging a professional search firm can provide an outside view of a business structure, helping to advise on where there may be apparent plugs to fill and suggesting ways to restructure teams. They can advise on market intelligence, including competition, salary benchmarking and brand perception to the wider market. They can lower the chance of a bad hire by ensuring rigorous checks and references are undertaken on each and every candidate. Most importantly, they can systematically and methodically search the market, leaving no stone unturned, ensuring the best the talent pool has to offer.
Hunter Scott as your search partner
Hunter Scott is a boutique real estate executive search firm founded to deliver the best talent for clients. Leveraging years of expertise in real estate search, we work with real estate funds, private equity firms, REITs, lenders and sovereign wealth houses to achieve immediate and sustainable results. Each client is treated as a “partner” with a view to creating long-term value. All searches are undertaken by Managing Director Lucy Winberg, who has over 15 years’ experience in the real estate sector including in-house for a Tier 1 investment bank. All this means you can be assured of a professional, “white glove” experience, providing absolute discretion and ensuring the best possible chance of securing the candidate who will add the most value.
For more information or a confidential discussion, get in touch with Lucy Winberg at +44 208 323 2552/Lw@hunter-scott.com.