Real estate has entered a very different era. After more than a decade in which low interest rates supported valuations across asset classes, investors now face a market shaped by higher rates, greater uncertainty and wider performance differences between individual assets.
For Richard Chambers, who has invested in real estate since 2000 and has helped build Invesco Real Estate’s pan-European value-add platform since joining the firm in 2017, that change marks a return to something familiar.
“The market has become much more bottom-up again,” says Richard Chambers. “For traditional real estate investors, that’s actually quite refreshing because correlations have broken down and the opportunity to differentiate has opened up.”
According to Richard Chambers, the years following the global financial crisis rewarded a different style of investing. Falling interest rates created strong tailwinds for many real assets and financial assets alike. Investors who simply backed attractive sectors such as logistics often generated strong returns without needing to focus heavily on individual asset selection.
Across Europe, real estate has experienced a significant repricing, with values declining by more than 20 per cent in many areas. At the same time, economic uncertainty and market volatility have created pricing inefficiencies that allow investors to find assets trading at attractive valuations.
“What we’ve always tried to do is stay true to our basic principles,” says Richard Chambers. “We’re here to drive performance out of assets through fundamental value creation.”
Importantly, he believes the sector’s fundamentals remain stronger than many investors appreciate. Europe has not experienced widespread oversupply across most real estate sectors. New development remains constrained by planning processes, permit requirements and higher construction costs. In many areas, demand continues to exceed available supply.
“If you have the right location and the right assets, demand is still there and supply is constrained,” says Richard Chambers. “That’s a pretty good basis from which to look forward.”
Institutional investors have traditionally viewed real estate as an inflation hedge and a stabilising element within diversified portfolios. Richard Chambers still believes those characteristics matter. However, he argues that real estate’s role has expanded beyond those traditional attributes.
In a world characterised by geopolitical uncertainty, technological disruption and rapidly changing public policy, tangible assets have become increasingly valuable, he says. Unlike many financial assets, real estate represents a finite physical resource with intrinsic utility.
“It’s more than just an inflation hedge,” says Richard Chambers. “As a real asset anchor within a broader portfolio, it’s got some very compelling characteristics.” He points to several structural themes supporting this view.
One is technology. The growth of artificial intelligence and data centres is increasing demand for power infrastructure and suitable development sites. Another is demographics, including ageing populations, urbanisation and growing demand for housing solutions such as student accommodation.
“These are long-term trends built around real needs,” says Richard Chambers. “People are getting olde, they need somewhere to live. If you provide the right accommodation in the right location, that can support a more resilient income stream over time.”
The combination of tangible assets, constrained supply and structural demand creates a powerful investment case, he argues. When investors add active asset management on top, the opportunity becomes even more attractive. “We can refurbish, develop, re-let and build businesses around portfolios,” says Richard Chambers. “That’s where additional alpha can come from.”
A few years ago, sustainability often dominated investor meetings. Today, conversations have broadened as markets focus on interest rates, valuations and opportunities created by the recent repricing. That does not mean sustainability has disappeared. Richard Chambers says environmental considerations remain fully integrated into the investment process, even if they no longer dominate every conversation.
“There is no doubt that we have obligations and responsibilities as real asset owners,” says Richard Chambers. “That hasn’t changed.” He believes sustainability matters for three reasons.
First, responsible asset management requires reducing energy consumption and improving environmental performance wherever possible. Second, assets need to remain relevant and desirable in five, 10 or 15 years’ time. Third, sustainability considerations can affect an asset’s long-term value, including its appeal to occupiers, operating efficiency, financing options and future liquidity.
“Sustainability is now fundamental to how we assess and manage assets,” says Richard Chambers. “It’s the right thing to do, it’s necessary for resilient assets and we believe it can support long-term value.”
One notable trend is the growing diversity of investor objectives. Richard Chambers says no two conversations are the same. Different investors face different constraints, portfolio structures and strategic priorities. Some want broad exposure through diversified funds. Others look for targeted sector allocations or co-investment opportunities. The importance of customised solutions has therefore increased.
Within Invesco’s value-add strategy, investors can gain additional exposure to specific sectors through co-investments. This can be accessed both through the diversified fund, and through dedicated opportunities, subject to the availability and suitability of individual investments.
“Every single conversation is bespoke at the moment,” says Richard Chambers. “We’re spending as much time listening as we are giving our own view of the world.”
If there is one area where Richard Chambers believes investors should become more demanding, it is understanding how managers generate alpha. The wide dispersion in pricing across Europe’s real estate markets means that simply making broad sector bets is no longer enough. The gap between high-quality and lower-quality assets has widened considerably.
“I would be very focused on a manager’s ability to generate alpha,” says Richard Chambers. “Where is that forecast performance actually coming from?”
He argues that investors should examine how managers source opportunities, assess individual business plans and execute asset-level strategies. As an example, Richard Chambers highlights London’s office market. Although attractive pricing and rental growth opportunities exist, identifying successful investments requires deep asset-level analysis.
At Invesco, the team reviewed more than 50 opportunities before completing a single acquisition. “Just buying London offices is a beta bet,” says Richard Chambers. “You need to be much more forensic than that.”
The term value-add is used widely across the industry, but Richard Chambers believes different managers define it in different ways. For Invesco, value-add investing begins with assessing and managing downside risk rather than simply targeting the highest possible return. The focus is on identifying high-quality locations, attractive pricing and resilient demand drivers before implementing operational improvements that create additional value.
“We focus first on understanding and mitigating downside risks, and then on identifying the operational measures that can create value.” says Richard Chambers.
That value creation can come from leasing initiatives, refurbishments, selective development activity or disciplined portfolio construction. The strategy also retains flexibility to invest across different parts of the capital structure when relative value opportunities emerge. Importantly, the philosophy is closely linked to the firm’s view of what future core real estate will look like.
Richard Chambers says the team effectively starts with a vision of the eventual core buyer before working backwards through the investment process. Factors such as location quality, tenant demand, liquidity and long-term resilience all influence the investment decision. “We always talk about designing a core exit and working backwards,” says Richard Chambers. “We’re trying to create tomorrow’s core assets.”
