Repositioning by adding future-proof asset classes

Market experience in recent years – from the pandemic to ESG regulation to a turnaround in interest rates – has shown that classic assumptions about risk and safety need to be reassessed. From our experience, two asset classes are currently proving to be particularly future-proof:

1. Life Science Real Estate: Demographic change, the increasing importance of medical research and the stable inflow of funds into public and private research institutions have made life sciences a reliable growth area. Laboratory space and research-related office properties have high occupier demand, low vacancy rates and a high degree of loyalty among tenants. At the same time, there are high demands on construction quality and technological equipment – which limits competition and makes the properties differentiable. GalCap has been successfully investing in this segment for several years and is currently planning to expand its existing portfolio into the German market.
2. Mixed housing concepts (including privately financed housing, micro-apartments, senior-friendly housing): The housing question remains one of the dominant social issues – and housing is a stable, albeit politically sensitive, asset class. Urban projects with high energy efficiency, social mix and well-thought-out infrastructure connections are particularly in demand. Investors who take the regulatory framework seriously and invest in quality can achieve long-term and predictable returns here. Vienna is considered a model market with high tenant satisfaction and stable earnings. In addition, rents are very affordable by international standards.

Other resilient segments such as logistics properties, educational or infrastructure properties can be a sensible addition – but are often either very competitive or very user-specific and therefore hardly suitable for third-party use.

It is not only the asset class that determines resilience – the choice of location is also becoming more complex. Three developments are emerging:

• Secondary cities are gaining in importance. The trend towards decentralised forms of living and working, digitalisation and quality of life factors is bringing B and C locations more into focus. Cities such as Linz, Graz or Leipzig benefit from regional dynamism, good universities and affordable housing. If cities can also score points with innovative clusters (e.g. tech, life sciences), this is another important advantage. Those who identify the right sub-markets at an early stage can benefit from positive price developments here – with less competition than in core cities.
• Climate change will have a much greater impact on some regions than on others. Parts of Spain will suffer massively, which could be reflected in the economic dynamism and property values there. For Scandinavia, the danger is much lower. Higher regions are also less vulnerable than coastal cities. In general, cities with clear adaptation strategies to climate change are preferable.
• Political and legal framework conditions are becoming more important in particular because regulatory interventions have recently become significantly more frequent – for example, through stricter rent regulations in the residential segment or tax restrictions. At the same time, market uncertainty is increasing due to geopolitical crises and economic upheavals, which makes stable, reliable framework conditions more important than ever for investors.

The transformation of the portfolios is not a short-term rebalancing, but a strategic process lasting several years. This makes it all the more important to take a structured view of growth markets. Investors should consider the following principles:

• Analyze relevant megatrends: Demographics, technology, climate change and urbanisation have a direct influence on space demand and user preferences.
• Understand regulation not as a risk, but as an orientation: ESG requirements, energy efficiency classes or tenancy law issues show where investments are sustainable in the long term – and where they are not.
• Partnering with specialized managers: Access to markets, projects and operator structures determines success or failure. Especially in more complex markets or asset classes that require explanation, local presence and in-depth know-how are essential.

Future-proof portfolios are based not only on the successful management of existing assets, but also on the deliberate further development of the strategic orientation. Investing in resilient asset classes and growth-capable locations at an early stage today creates the basis for stability, income and differentiation in the coming market cycles. GalCap Europe supports institutional investors in taking advantage of these opportunities in a structured way – as a partner for repositioning and strategic portfolio development.

In the fourth chapter, we take a look at the topic of ESG – not as a regulatory must, but as a value driver in active asset management.