Technology is a dominant theme as it continues to reshape conventional property uses and definitions, while also transforming the back office and every stage of the real estate process.
At the same time, REHC executives remain wary of continued geopolitical and policy uncertainty, and growing regulatory intervention. Ongoing trade and tariff issues are impacting markets that have experienced robust growth; these trends along with evolving competition rules will challenge dealmakers in the near term. Some companies are planning more cross-border deals to mitigate the potential negative impact on their operations, secure market access and protect supply chains.
In this context, frequent portfolio reviews are becoming the norm, with 70% of REHC executives reporting that they are reviewing their portfolios more frequently than once a year.
Frequency of portfolio reviews
70%of REHC executives report that they are reviewing their portfolios more frequently than once a year.
For many, this may trigger an assertive cull, as REHC organizations look to right the imbalance around property types or regions that can occur toward the end of a long cycle. Eighty percent of REHC executives indicate that the main outcome of their most recent portfolio review was to divest an underperforming or at-risk asset. We expect to see more divestiture activity as portfolio optimization continues.
Results of portfolio reviews
80%of REHC executives indicate that the main outcome of their most recent portfolio review was to divest an underperforming or at-risk asset.
Overall, deal activity is unfolding in an environment of intensifying competition and the growing influence of private equity: 73% anticipate increasing competition for assets, with nearly half (48%) reporting that this competition will come from private equity and other RE-focused funds. Watch for increasing collaborations between RE players and private equity on deals, especially where acquired assets must be divested to execute the deal.
As the current real estate cycle reaches its late stages, REHC execs are watching interest rates carefully, mindful that rising rates have negative implications for asset values. This, along with continued political uncertainty and private equity impact, will continue to shape the market conditions. If the macroeconomic fundamentals stay positive, we anticipate healthy levels of deal activity across the REHC sector in the year ahead.
Summary
We anticipate continued healthy levels of deal activity in the late stages of the current real estate sector cycle. If macroeconomic fundamentals remain positive, the sector should continue to pursue mergers and acquisitions despite — and because of — geopolitical and policy uncertainty as well as disruptive forces.
