The commercial real estate (CRE) landscape has profoundly transformed since mid-2022, creating compelling investment opportunities for institutional investors. Rising interest rates and macroeconomic uncertainty have driven capital values down by approximately 20-25% across Europe and other developed markets, according to the CBRE Prime Capital Value Index. The current environment presents factors that make real estate debt particularly compelling: attractive entry valuations, conservative lending structures and meaningful portfolio diversification benefits.
Foundation for growth
Private markets have demonstrated remarkable resilience and growth, expanding approximately 7.8% annually since 2012, more than double the 3.5% growth rate of public markets over the same period, according to EY. This sustained expansion reflects institutional investors’ ongoing search for yield enhancement and portfolio diversification, particularly during the prolonged low-interest-rate environment that characterised the decade leading up to 2022’s rate hikes.
Despite the elevated inflation and interest rate environment since mid-2022, investor appetite for CRE debt remains strong. Recent INREV surveys show 62% of investors plan to increase allocations to real estate debt, with public and private pension funds showing the largest increases in planned allocations. The appeal of backing bricks and mortar becomes particularly relevant when macroeconomic uncertainty is affecting investors. Unlike corporate credit, where recovery depends on often intangible business assets, real estate debt provides lenders with the ability to either force asset sales or take direct control of underlying properties, holding until market conditions improve.
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Supporting documents
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