- High-quality offices and residential real estate remain in demand
- US rent growth has slowed and Europe is facing age of stock issues
- We expect income growth to drive outperformance, while diversification is key
This article is part of our 2026 Investment Outlook.
Real asset values have stabilised
The logistics sector continues to lead the way within the real assets universe, in both the US and Europe. High-quality offices are seeing an improvement in pricing as the ‘return to office’ mandate gathers pace.
The resilience of the living sector is also continuing to garner investor interest in markets where investors have limited exposure. Meanwhile, the valuation swings that we have seen were more muted in the infrastructure market. Values have stabilised and even started to recover in the renewable energy and digitalisation segments.
Europe more resilient than the US
The US’s new supply pump was well primed before the pandemic and while it has slowed recently, the wave of development completions in the past five years has slowed rent growth. Europe continues to suffer from its age of stock issues and tight fundamentals at the prime end of the occupier market.
Prime rental value growth continues to eclipse inflation with most European markets now boasting record nominal rental levels. In these top performing markets, occupiers are widening their locational focus beyond key city centres and into well-established fringe locations to take advantage of the price gaps. However, there remains a key focus on building quality where no compromise is being made.
Diversification will be key
While the divergence in rates provides some scope for inward yield movements in Europe, the ultimate quantum will likely remain muted in a historical context. Income growth prospects will likely remain the key driver of outperformance for the foreseeable future. Considering this dynamic alongside heightened macroeconomic and policy uncertainty it is reasonable to expect that wider diversification will likely prove a good level of ‘vintage’ insurance should adverse scenarios take hold.
Transaction activity starting to show signs of life
In volume terms, activity remains greatest in the residential and logistics segments, but there is a return of interest for high quality office buildings and larger lot sizes/portfolios, which are both starting to see a resurgence in activity. This growth in transactions is being supported by a more diverse base of investors beyond high net worth and private buyers to now include listed players, sovereign wealth funds and insurance and pension funds.
Renewed equity investment activity widens investment opportunities
The denominator effect, where investors become over-allocated to assets such as real estate and infrastructure, is abating – which has brought institutional investors back as they once again find themselves under-allocated, especially in the infrastructure space. The rise in equity investment activity will widen the investable debt universe by adding fresh origination opportunities to lenders that have been focused on the refinancing needs of their borrowers.
In the US, there has been a rise in short-term extensions and loan modifications in the office and multi-family space where there are growing signs of defaults and delinquencies, but an absence of completed distressed asset sales. The wider range of equity investors is broadening the sales market to include high-quality core assets through to higher-yielding and challenged asset management-intensive options. In Europe, development opportunities are becoming attractive given the strength of the occupier market and limited availability for the top-quality assets that occupiers demand.
