Schroders Capital: Real estate recovery underway

Schroders Capital's latest Real Estate Investment Outlook suggests that the property market is recovering and will gain momentum through 2026. 

Modern office skyscraper - Schroders Capital

This recovery is expected to bring higher transaction volumes, rent increases due to limited supply, and attractive investment opportunities across various sectors and regions.
The report, which utilises Schroders Capital's unique valuation framework, aims to guide investors on how to position their real estate portfolios for strong long-term performance. It also outlines preferred strategies aligned with key macroeconomic trends and specific opportunities within those strategies.
Maintaining their previous view, Schroders Capital believes the real estate market has reached a turning point after a period of price adjustments. Their framework now indicates a growing number of attractively priced opportunities in multiple sectors and regions, suggesting a favourable time for real estate investments.
While investment activity in 2025 has been quiet, and geopolitical events initially dampened sentiment, transaction pricing and valuations have shown modest improvements. Investor confidence has recently been boosted by easing global tensions and clearer tariff policies. Additionally, surveys indicate that institutional investors are under-allocated to real estate, implying an increase in new capital commitments.
Despite modest economic and rental growth forecasts, occupier markets are supported by a structural undersupply, largely due to high construction costs and reduced access to debt, which have slowed new developments. This "cost-push" effect on rents, where rising construction expenses drive up rental prices to maintain development viability, could lead to real income growth for well-positioned assets if economies rebound.
The valuation framework highlights growing opportunities, particularly in industrial and logistics, where market fundamentals are strongest. The overall market suggests that strategic investments should benefit from favourable entry points and increasing cash-on-cash yields.
Schroders Capital is particularly interested in sectors like logistics, living, storage, and hospitality, where operational improvements can boost returns, and where current pricing is disconnected from long-term income growth potential. Their preferred portfolio strategy has become more neutral across sectors, given better clarity on "rental floors" in retail and office, and attractive yields for future-proof assets.
Looking ahead, factors like building sustainability are expected to have a greater impact on relative performance, unlike recent years, which saw significant divergence in sector returns. The current environment also presents strong recapitalisation opportunities for real estate platforms, funds, and other holding entities, offering flexible capital solutions to management teams facing time or financial limitations.