Swiss Life on real estate opportunities that will pay off in 2024

The attractiveness of real estate investment versus other asset classes has accelerated early in 2024, according to Swiss Life Asset Managers, with its head of real estate describing the asset class as “a sweet spot for any institutional investor”. Speaking at MIPIM, Per Erikson said: “Buyers will find a lot of good opportunities in the distressed market. We think within the next six to 12 months you have to grab these opportunities because after that normalisation will kick in.” The Zurich-based investment firm has favoured residential, healthcare, logistics and office assets, and expects the first two will continue to benefit from a lack of supply across regions and favourable trends in the market. As for offices, Erikson said prime locations such as London, Paris and Berlin still offer “good” investment opportunities. Elsewhere, Swiss Life is betting on the hospitality sector, especially hotels. Erikson said: “We saw that everything that has to do with business travel or tourism kicked off so hard after the pandemic, more than many had expected. Downturns are opportunities, and these opportunities will pay off.” According to the firm, 2023 was a “tough” year for real estate when compared with other asset classes, with the market hit by asset mispricing amid interest rate moves. Beatrice Guedj, head of research and innovation, said: “We are expecting that interest rates will remain higher for longer. For real estate, this would mean future performances will be significantly driven by income returns and not by capital returns. “As such, investors will look for sectors that provide net operating income. That’s why we like residential, healthcare, logistics and hospitality, with the latter offering an income stream mostly through management contracts.” The firm said the hospitality sector has adapted to shift in business and leisure travel trends, as well as making progress in pushing forward its ESG standards. New market dynamics have smoothed out the traditional peak and fall season, with a strong demand from domestic and European travellers keeping in line throughout the year. As a result, the sector has seen a considerable growth in rental prices. Guedj said: “The flow of investments from large sovereign wealth funds and large pension funds into hospitality in Europe suggest a search for value growth and more active management and value creation to both reposition assets and hold these assets.” “We currently manage €2bn (£1.7bn) in European hospitality and it is set to become more mainstream asset class, given its meaningful features to capture every source of growth.” Image from Swiss Life