Sir Keir Starmer and Donald Trump could not be further apart in temperament, but the reaction from financial markets suggests both their policies will lead to stickier inflation and higher-for-longer interest rates.
While markets are still pricing in further rate cuts from both the Bank of England and Federal Reserve, the speed and extent of the rate cuts is expected to be slower and shallower. This means real estate investors cannot rely any time soon on a materially lower cost of capital to drive yield compression, even if Bank Rate cuts are still expected.
In our opinion, it is likely that the managers that will outperform in this cycle will have the in-house asset management and operational capabilities to drive above-trend rental growth together with associated yield compression. The skillset to create desirable assets of quality is something Moorfield has developed over 28+ years of investing across most real estate sectors. In particular, we are known for our investment and asset management expertise in those sectors called ‘alternative’ real estate, from hospitality & leisure through to most of the residential for rent ‘living’ sectors, all of which are now increasingly mainstream.
Our current preferred sectors – Living & Storage – are united by the shortage of institutional-grade product, their needs-based demand drivers and the ongoing experience of inflation-linkage. These qualities provide both resilience and the opportunity for enhanced value creation.
While there are no doubt challenges ahead, the best investment vintages tend to arise when it is most difficult to feel optimistic. We remain cautious for obvious macro and micro reasons, but we see investment and development opportunities ahead that will allow us to deliver strong returns to our investors while positively contributing to society through the provision of high-quality real estate that is energy efficient and either enables critical economic activity or provides much needed accommodation.