In a recent discussion, Adam Gallistel, the Co-Chief Executive Officer and Chief Investment Officer at CBRE Investment Management (CBRE IM), provided a detailed analysis of the global real estate market. He identified Europe as a particularly compelling region for investment, citing greater valuation declines and less competition for assets compared to the United States.
Gallistel, who joined the $150 billion asset manager in 2024, shared his insights during an ION Influencers Fireside Chat, outlining a strategic outlook for navigating the post-reset market. Despite a challenging few years for the asset class, he expressed optimism for the next cycle, driven by attractive entry points and slowing construction pipelines.
Key Takeaways
- CBRE IM's Adam Gallistel identifies Europe as a prime real estate investment area due to larger valuation drops (25%) compared to the U.S. (20%).
- The U.S. market remains highly liquid and attractive, with essential retail showing strong fundamentals and renewed pricing power for landlords.
- The industry is seeing a rise in GP-led secondary transactions as firms seek alternative capital sources.
- Retail capital from individual investors represents a significant growth area, though it presents challenges related to market timing.
- Consolidation is accelerating in the asset management industry, with larger, integrated firms gaining a competitive advantage.
Navigating a Market Reset
The past three years have been difficult for real estate investors, especially when compared to the performance of technology stocks and growth equities. According to Gallistel, infrastructure investments have proven more resilient during this period, offering better returns for investors. However, he believes the recent downturn has created a favorable environment for the next real estate cycle.
Two primary factors support this optimistic view. First, many properties are now trading at significant discounts to their replacement cost, creating attractive buying opportunities. Second, the pipeline for new construction is slowing down, which is expected to limit future supply and give property owners greater pricing power in the years ahead.
About CBRE Investment Management
CBRE Investment Management is the global real assets investment management arm of CBRE Group, Inc. It manages approximately USD 150 billion in assets, with a diverse portfolio spanning real estate and infrastructure across both public and private markets worldwide.
Europe's Compelling Value Proposition
While opportunities exist globally, Gallistel highlighted Europe as offering particularly strong relative value at the moment. The continent's property markets have experienced a more pronounced reset than those in the United States.
Key Differentiators in Europe
Several data points underscore Europe's current appeal for institutional investors:
- Deeper Valuation Declines: European real estate values have fallen approximately 25% from their peak, compared to a 20% decline in the U.S.
- Less Capital Competition: The U.S. commercial real estate market attracts about 4.3 times more capital relative to its market size, leading to more competition for deals.
- Attractive Spreads: The gap between property yields and risk-free government bond rates in Europe is closer to historical averages, suggesting a more reasonable risk premium for investors.
- Limited New Supply: A constrained development pipeline supports a healthier outlook for rental growth in many European occupier markets.
Despite these advantages, executing deals in Europe requires deep local expertise. Gallistel emphasized the necessity of having "boots on the ground" to navigate the continent's fragmented markets, diverse languages, and complex regulatory environments. CBRE IM maintains multiple offices across Europe to manage these challenges effectively.
Opportunities in the U.S. Market
The United States continues to be a core market for real estate investment, prized for being the most liquid and least regulated major market globally. These factors provide significant advantages in executing transactions efficiently.
Within the U.S., Gallistel pointed to essential retail as a standout sector. After years of disruption from e-commerce and the pandemic, the sector has stabilized. Rents have reset, and well-located retail centers now provide landlords with renewed pricing power.
"We are focusing on long-term fundamentals over day-to-day macro headlines. Our core focus remains on markets with a strong rule of law, economic stability, and the right conditions for long-term growth."
Evolving Investment Landscape and Key Skills
The real estate industry is undergoing significant structural changes. Gallistel noted several key trends that are shaping the future of asset management, including the growing importance of data, the rise of secondary markets, and the democratization of capital.
The Role of Data and Secondaries
While data collection in real estate is improving, Gallistel noted it has so far produced few truly counterintuitive insights. The long-term goal is to leverage systematic data gathering to uncover unexpected opportunities that traditional analysis might miss.
The Secondary Market Explained
In private markets, a secondary transaction involves the buying and selling of pre-existing investor commitments. LP secondaries involve limited partners selling their stakes in a fund. GP secondaries are initiated by the general partner (the fund manager) to restructure a fund, provide liquidity, or hold assets longer.
The secondary market for real estate is also evolving. While LP secondaries remain less developed compared to private equity, GP-led secondaries are growing. This trend is driven by a challenging fundraising environment, pushing managers to find alternative ways to provide liquidity to their investors and ensure the sustainability of their platforms. However, these complex transactions require careful governance to protect investor interests.
The Frontier of Retail Capital
One of the largest growth frontiers for real estate investment is tapping into retail capital, or private wealth from individual investors. Regulatory changes, such as enabling 401(k) access to alternative investments in the U.S., are helping to open this channel.
While institutional investors are often near their target allocations for real assets, penetration among retail investors is minimal. The primary challenge, Gallistel explained, is that retail capital tends to be procyclical, with inflows often peaking when markets are at their highest. CBRE IM is approaching this opportunity with a measured strategy, balancing the growth potential with its fiduciary duties.
Industry Consolidation and Future Leadership
The asset management industry is consolidating, with larger, more integrated firms gaining market share. According to Gallistel, investors today demand more than just expertise in capital allocation; they also require deep operational excellence at the property level. This shift favors firms with scale and integrated capabilities.
For success in this new environment, Gallistel identified two critical skill sets for real estate professionals:
- Forecasting Skills: This includes statistical thinking and the adaptability to change views when new data emerges.
- Deal-Making Ability: This combines persistence and grit with the empathy needed to understand the motivations of all parties in a transaction.
Reflecting on his role, Gallistel described his leadership philosophy as being focused on building and empowering a strong team of future leaders. His long-term goal, he stated, is to develop the next generation to the point where they can make his own role redundant, ensuring the firm's continued success.
