Real Estate – Encouraging signs

Logistics continued to be a dynamic sector in 2024, and the year saw the rise of investment in warehouses and distribution centres to meet the demands of online retail, whilst advances in technology (particularly the rapid growth in AI and data capture) resulted in an increase in focus on data centres for many investors. Interestingly, the structuring of many of the data centre deals has evolved, with more investors seeking to retain management roles in the assets, either through joint venture or partnership acquisitions. Equally, with the advances in AI, the ability for data centres to be built in more varied locations and to larger scale and efficiency has seen this asset class continue to attract increased levels of interest from investors. 2024 saw a record-breaking deal for the Asia-Pacific region with the $16.11 billion acquisition of AirTrunk, a hyperscale data centre specialist, by Blackstone and Canada Pension Plan. We discuss data centres and M&A in more detail in our TMT and Digital Infrastructure piece.

As well as the impact of technological advances, emerging laws and policies related to energy consumption and an increasing focus on sustainability and ESG considerations has influenced the direction of investor preference. This can be seen in the growing demand for investment in assets which are energy efficient and provide a positive social impact to the wider community. German markets saw an increase in investments in the solar energy field and a further increase in the installed energy capacity is expected in 2025, although the development of rooftop systems on residential buildings has declined and the focus has shifted to ground-mounted solar systems instead. 

With traditional banks continuing to exercise caution in commercial real estate lending due to valuation declines and covenant concerns, private lenders rose to meet the challenge and started to deploy significant levels of capital into the sector.

As we head into 2025, possible improvements in underlying economic conditions and interest rates appear likely to be offset by increasing geopolitical concerns. Investors will still need to navigate uncertain markets, major elections and international tensions. However, as 2024 taught us, investors are becoming more alive to the new opportunities created by evolving asset classes and technological advances. Likewise, with new attitudes towards structuring deals and the likely re-entry of PE investors in the market, we are cautiously optimistic that the momentum we saw building in the last few months of 2024 will continue.