Last week's 2022 EXPO Real conference in Munich saw attendance almost back to pre-pandemic levels, but this year's event struck a rather different tone to recent gatherings. Amidst the current climate of geo-political and socio-economic uncertainty, the mood was described as sombre and, in some quarters, pessimistic. Below we share some of our anecdotal insights and thoughts on the near-mid term investment landscape for real estate and on whether these gloomier outlooks are likely to come to pass.

Much has been commented about this watershed moment of uncertainty in commercial real estate markets in the UK and the jangling nerves of investors, and that was even before Kwasi's "mini" budget sent shockwaves through the wider economy.

Many reactions have been justified by actual activity. Anecdotally, we have seen more deals put into a holding pattern and a number of transaction timelines are also being drawn out, as investors wait and see where pricing and interest rates settle in Q4 and into the start of Q1 2023. There are obviously starker illustrations. Investors have been pulling money out of institutional open-ended property funds and many of those funds have sought to defer redemptions as a result. And it's no secret that listed REIT stocks have also taken a hammering in the great sell-off amid the Chancellor's "special fiscal operation".

But is the current bearishness really reflective of where activity levels might settle over the next 6-12 months? For one thing, many asset managers appear to have taken a general economist outlook on real estate, without appreciating some of its more subtle features - its sub-sectors, its geographical sub-markets and those emanating from stressed/distressed scenarios, for example.

Similarly, commentators often cast "the real estate investor" as a vanilla, one-size-fits-all species, where the reality is, again, somewhat more subtle. Many investors at the more value-add/opportunistic end of the risk spectrum, with significant capital reserves to deploy, will be looking at the current landscape with a degree of enthusiasm. These investors, and even some who would typically have a more core/core-plus strategy, can benefit from dislocation and turbulence in the markets and a greater onset of stressed/distressed opportunities – a greater spate of these are surely to come as supply-chain issues, inflation and debt market volatility persist and accelerate the need for dynamic capital solutions.

We hear that the attitude in these quarters is that you need to stay inquisitive (continually mining your network) and acquisitive. Stay agile, ready to transact but also keeping an open mind to shifting strategy, if an opportunity unexpectedly arises - become a "chameleon investor", a term we have heard coined of late. If activity levels soften amid market nervousness and competition to secure transactions abates slightly, the way could be paved for those that can pivot and transact quickly.

Additionally, some market participants are looking to shift strategy and look to the long-term future already. Whilst RE capital raising saw a downtick in Q3, we should see a significant re-stocking of investment firepower in months to come. Similarly, a number of investors are using the relative hiatus to cement long-term, strategic joint venture partnerships, whilst more cautious onlookers might miss out. Typically well-capitalised sovereign and pension funds may be well-placed to benefit if the right relationships emerge and this category of investor might also focus those efforts on specific assets with long-term horizons – infrastructure and project-focused investments should provide a steady staple for capital deployment in this kind of environment, for example.

The current macro-economic landscape, not to mention the specific effect of Trussonomics, has clearly created one of the most uncertain UK real estate investment climates in recent times. Crystal ball-gazing as to how this will play out in the near-to-mid term has become a thankless hobby for some, but what we do know is that plenty will be bullish for the fallout, once the dust begins to settle – we could still be looking forward to exciting times in the not too distant future...

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