Shifting sentiment: From caution to action

Sentiment at recent conferences has been defined by a restraint on investor confidence due to geo-political and wider macro uncertainty. The outlook was defined by caution and survival until such headwinds eased.

Whilst EXPO 2025 did not confine the themes of caution and survival as issues of the past or mark a return to “optimism” it was the first for a while to see mobilisation towards action in the investment and debt markets.

Whist certain markets and geographies remain dislocated, there is an increasing acknowledgement that within a new world of greater pragmatism and acceptance of geo-political instability and uncertainty, the macro-headwinds can now be risk-allocated and inform rather than deter transactional activity.

Mobilisation enabled from this shift in mindset may take time to translate into pre-Covid transaction volumes, as the management of and appetite for risk is likely to influence the speed and approach to transactions but is nevertheless an important vote of confidence in the fundamentals of the European market.

The debt landscape

Whilst underlying transaction volumes are increasing, the small number of high-quality new-money deals which do come to market are aggressively brokered.

In this competitive landscape, and in the context of non-core deals, lenders with the ability to blend different sources of capital (including cheaper insurance money) are well placed to secure these important mandates.

The comparative scarcity and pricing pressures of deals are increasingly forcing lenders to deploy tickets in the lower mid-market (€30m-€50m) where speed of execution and the ability to underwrite more transitional business plans are highly prized.

As capital raising pressures slowly ease on managers with an allocation to credit, lenders continue to asset classes which benefit from structural undersupply in the market, combined with compelling debt-entry points.

Evolution of risk assessment

In a market regaining its confidence, it was clear that careful and considerate management of risk will be a major influence on transaction activity in the near term.

As institutional capital is attracted by asset classes where operational excellence and expertise is a key driver of value and returns, the need for such capital to partner with sector specific operators fuels a rise in risk-sharing transaction models, joint ventures, co-investments and secondaries.

Whilst the usual fundamentals of site selection, due diligence and realistic transaction timetables will remain important, confidence in investing through long-term partnerships requires cultural and personal alignment and there was a palpable feeling of the need to build deep and informed connections between parties to inform risk management. Whilst AI may allow elements of investment due diligence to be accelerated it cannot replace personal connection and accumulated trust.

A market redrawn to embrace the new normal

So, in a market ready to mobilise how will a return to optimism translate into activity?

Shifts in capital flows

An increased allocation towards European markets from global sources of institutional and sovereign wealth capital will make a meaningful difference. There was a consistent sentiment of the UK and mainland Europe being ahead of the cycle when compared to the US, flexible, tech-enabled, sustainable buildings are likely to attract such capital enabling deployment at scale familiar and stable markets.

Enduring appeal of logistics and living sectors

Whether through a combination supply chain changes driven by the impact of AI and automation, a continued evolution and sophistication of logistics to meet the customer demands for speed and accessibility, and a need to embrace and prepare for the anticipated growth required in data centre capacity, we see logistics at the heart of investment activity.

Demographics and societal change will continue to drive investor appetite for the living sector. As populations continue to live longer and become accustomed to home ownership no longer being a barometer of personal prosperity and status, the need for the living sector to embrace such shifting needs is seeing a market ready to offer options beyond traditional build-to-rent. Single-family Rental and Senior Living are comparatively underdeveloped asset classes and we expect to see increased allocations to these sub-sectors.

Implications of increased defence spending across Europe

This marked shift in government policy across Europe was a significant discussion topic. Outside of the need for increased manufacturing capacity, existing and new supply chains will need to be developed and adapted to facilitate the political shift in priorities. As with other sectors, it will be critical that infrastructure spending from both public and private sources keeps pace and enables rather than frustrates development.

Conclusion

Whilst encouragement can be taken from a gradual increase to levels of confidence and pragmatism in the market, the most important sentiment we took from the Messe was the enduring power of personal connection and trust as the bedrock of investment. We saw a market ready to do business but in a world where effective risk allocation is paramount.  Getting closer to and understanding investment partners cannot be outsourced or automated and EXPO 2025 was a welcome restatement of its importance.