At PERE’s Europe Forum last week, various keynote panelists shared which market segments they felt had reached the bottom in terms of valuations.

Jessica Hardman, head of European portfolio management and the UK real estate group at German manager DWS, said urban logistics may have found the floor. She cited CBRE’s UK Monthly Index, which showed total returns for industrial were up 1 percent in April and 1.7 percent in March.

“I appreciate this is a bumpy road – other things may [reflect] that – but I think that is somewhere where we would place capital today if we could find enough stock to do so,” Hardman told members at the event.

She added that some of DWS’s investors that never use leverage perceive a window of opportunity in urban logistics, a sector they would previously not have been able to access, as “there would have been too much competition at a levered level for them to be able to really be a strong competitor.” Now, however, they can be attractive buyers for vendors looking to exit without any financing risk.

Hardman adds there is less competition in the market for more operational assets at the moment, a sentiment shared by Sophie van Oosterom, global head of real estate at London-based asset manager Schroders Capital.

Van Oosterom says her firm used the covid period to “reassess what works and what doesn’t work” in its hotel portfolio to drive efficiencies and reduce fixed costs. “Coming out of covid, we’ve seen the biggest recovery actually in the top line to happen there, which immediately fell to the bottom line, given the efficiencies on the operational side.

“With the expertise on the ground, with operational expertise both in the hotel sector and on the residential side driving those long-term trends and driving income in those [assets], I would feel that we’ve hit the bottom for those kinds of strategies.”

Schroders’ van Oosterom: sees valuations adjusted for net-zero capex in some assets

Van Oosterom also said she would call the bottom in some European markets for core offices with “the right sustainability credentials,” having seen in the past six to nine months an adjustment in the valuations of secondary assets where capex is needed to bring them onto the path to net zero. “That was absent in the market before, and I think now there is an active revaluation and a repricing happening on that front.”

Jay Kwan, managing director at Canadian manager QuadReal, said he would call the bottom on UK industrial. “At 150 to 200 basis points cap rate expansion for prime UK, a 5.5 percent yield today is roughly the cost of financing for stabilized kit, so you don’t have negative leverage. You get to look at that and say, you know what? Maybe we swung too far.”

Like Hardman, he notes that UK industrial has been the best performer in recent months. “We’re grasping at straws, but still I think it’s a signal that maybe you’re at the bottom, near the bottom, or may have just passed the bottom.”