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A room suitable for a student in a house share
For years, the real estate mantra of "beds and sheds" has dominated the European investment landscape, with institutional capital flowing heavily into residential and logistics sectors. But LaSalle Investment Management, in its latest outlook, warns that this narrow focus risks missing out on lucrative opportunities in other asset classes.
According to LaSalle’s European Research Head Dan Mahoney, the real estate market is at the dawn of a new cycle, and simplistic strategies no longer capture the sector's complexity. “Simple concepts such as ‘beds and sheds’ are too simplistic to do justice to the current complexity of the European real estate market,” Mahoney stated.
LaSalle’s latest data shows an evolving market where rental growth in prime sectors is starting to outpace inflation. From January 2024, rents for new commercial leases have increased by 2.7% relative to expiring leases, signaling resilience in select markets. However, LaSalle cautions that the strongest returns may now lie in overlooked sectors and niche opportunities.
Attractive yields in niche markets
LaSalle highlights specific opportunities for investors willing to think beyond the traditional. Retail, for example, offers compelling yields in certain formats that many investors have written off. Outlet centers in the UK and Northern Europe, as well as retail parks in Spain, France, and the Netherlands, have become attractive due to rising yields.
In offices, LaSalle sees promise in redevelopments in central Paris and core assets in London and Amsterdam, where prime rents are climbing. In the residential space, student accommodation in Germany and Spain is noted as a standout niche, combining strong demand with stable returns.
For risk-averse investors, LaSalle recommends exploring real estate debt funds, which provide exposure to the market with a more defensive profile. Meanwhile, those staying in logistics should focus on future-proof locations to counter slowing growth in returns. Regions such as France, the Netherlands, and North Rhine-Westphalia stand out as logistics hotspots.
LaSalle’s proprietary ISA Outlook 2025 adds further granularity, using a data-driven approach to identify promising investments. By analyzing Europe through over 1.5 million geographic segments, the firm’s "Paths of Distribution Score" offers unparalleled insights into sub-sector potential.
New cycle and long-term perspective
Mahoney believes the market’s gradual recovery from capital market corrections presents a unique moment for early-cycle investments. “Past experience has shown that investments made in the early phase of a cycle lead to good performance,” he said, noting that prime real estate’s outlook has decoupled from the region’s weak economic growth.
While LaSalle predicts a soft landing for the U.S. economy and stabilizing global interest rates, challenges remain, particularly in China’s weakening market and Japan’s unique economic conditions. Nonetheless, clarity on interest rates and improved sentiment are expected to drive the European market’s recovery in 2025.
As real estate cycles shift, LaSalle’s message is clear: investors must broaden their horizons and adapt to emerging trends. The coming years will demand more nuanced strategies to seize the opportunities that lie beyond the familiar territories of "beds and sheds."
