Despite the market turbulence, rental growth for core assets across most sectors has remained strong. This has been particularly pronounced in core residential, logistics and prime offices. Occupier demand remains and is sustainable, and attractive market fundamentals are supporting positive rental growth outlooks and returns. 

These dynamics are creating a tailwind for capital coming back into core real estate, making now a good entry point. 

How core has evolved 

Core portfolios have evolved materially over the last 15 years. The market has seen a major shift in portfolio weightings towards logistics and away from retail, which has been well-documented and driven by the rise of e-commerce and changing retailer value chains. 

In the office sector, there’s been a dramatic change in what would have once been considered a ‘core investment’. Whilst in years gone by, this would have encompassed both primary- and secondary- located buildings, now it’s very rare to consider anything but a central location for core office investments because of the changing occupier demands and use-models post-pandemic. The office as an asset class is not dead, but there remains a lot of uncertainty around the sustainability of occupier demand, due in part to changing attitudes towards home-office and remote working trends. This uncertainty has been a driving force behind the more significant repricing in the office sector. At AEW we believe there will always be a need for offices which provide the best space in the best locations, which is why prime offices is one of our conviction sectors.

Read the full ‘Thought Leadership’ article at the link below