Getting all sentimental?

Sentiment is the great intangible in real estate. However much we like to think of ourselves as analysts making evidence-based choices, decisions are inevitably coloured by prevailing narratives, and the story behind real estate has been a touch below-par for some time.

Individual sectors have seen more optimism than others, but when taken as a whole real estate hasn't been top of the list of investors' preferred asset classes. Better returns have been easier to find elsewhere and capital has shifted accordingly.

The good news, however, is that sentiment is changing. INREV's latest Investment Intentions Survey, which takes the pulse of 78 global investors, revealed that 38% expected their allocations to real estate to increase over the next two years, with confidence at its highest level since 2019.

To put it bluntly, this matters, and augers well for the sector. When sentiment flips from the negative into the positive it acts as a virtuous circle, with heightened confidence driving yet more optimism. Institutions and funds eyeing a market recovery, and allocating capital to real estate accordingly, will encourage other investors to dive back in. Sectors including city centre offices and logistics are looking to capitalise on improving sentiment in 2026.

There will also be hopes that this upturn in confidence is not only reflected in capital values. The listed sector has struggled for some time to sell its story, with the market capitalisation of many REITS trading at a discount of more than 20% to net asset value. Some improving sentiment could go a long way towards narrowing that gap.

Having a compelling story to tell is one thing, knowing the best way to tell it is another. As the sector enters a more optimistic period, it is those companies that are best able to shape the narrative and communicate with the market that will capitalise most. Another sentiment that Innesco can happily agree with.