Liz Gorgoglione: Institutional investors, especially insurance companies, are slightly increasing their real estate allocations but are still highly selective, prioritising investments that generate stable, durable income to match long-term liabilities.
"Some insurers are partnering with private capital managers to reposition portfolios and leverage external expertise for better returns."
There’s a notable move from equity investments to private credit and debt, which offers attractive yields and a better risk profile. Investors are focusing on resilient sectors with predictable revenue – such as data centres, industrial, residential, and infrastructure – while approaching office and some retail sectors with caution.
Additionally, elevated rates make new investments in debt instruments more attractive, allowing insurers to earn wider spreads. Some insurers are partnering with private capital managers to reposition portfolios and leverage external expertise for better returns.
Liz: Investors and risk professionals such as ourselves are closely watching metrics like Debt Service Coverage Ratio (DSCR), Loan-to-value (LTV), net operating income (NOI), cap rates, vacancy rates, lease rollovers, refinance risk, and delinquency rates to assess and manage credit risk in our real estate debt portfolios – especially in challenged sectors like office properties.
"There’s heightened attention on asset quality, especially as market conditions shift and refinancing risks rise."
Stress testing and monitoring of market and portfolio dynamics are essential for proactive risk management, and scenario analysis is essential for credit risk, especially under rising rates and sector-specific vulnerabilities.
There’s heightened attention on asset quality, especially as market conditions shift and refinancing risks rise. This leads to additional scrutiny of commercial real estate (CRE) portfolios for valuation frameworks, collateral values, predictability of cash flows, and risk classification.
But while these quantitative metrics are standard and quite important, we certainly shouldn’t ignore qualitative metrics such as location, market, management structure, and sponsor risk. Investors need to be diligent in assessing and mitigating these risks, particularly as it relates to sponsor risk and fraud, which has been seeing an uptick in recent years.
Liz: The investment landscape is changing—higher fixed-income yields are driving a rebalancing away from illiquid real estate toward liquid credit instruments, with increased focus on liquidity, risk management, and sector-specific performance.
Exposure to private, illiquid assets enables insurers to better match the long-dated nature of their liabilities and reduce balance sheet volatility. And while real estate remains attractive for long-term benefits, investors are also balancing illiquid private assets with more liquid alternatives (such as real estate investment trusts (REITs) or short-duration fixed income) to maintain flexibility.
That doesn’t mean investors are throwing in the towel when it comes to core real estate, but merely shifting toward value-add and opportunistic real estate strategies. For example, value-add opportunities exist in areas driven by digitalisation - for example, cell towers and data centres - and demographic shifts.
Liz: Core real estate in 2025 saw some volume and valuation declines (though signs of stabilisation are emerging), given US trade policies, geopolitical risks, and deficit concerns, which prompted investors to seek liquidity and current yield.
"Industry consolidation may occur, and improving macroeconomic conditions and normalisation of interest rates could support activity and property values."
Alternative lenders and credit funds are filling gaps left by traditional lenders, offering higher yields and stronger protections. Sector-specific strategies (residential, logistics, alternatives) are favoured, as are triple net (NNN) strategies. Particularly the latter, which provides predictable, long-term cash flows and downside protection.
Looking ahead, industry consolidation may occur and improving macroeconomic conditions and normalisation of interest rates could support additional activity and property values. Disciplined and diversified approaches will be key in determining investment strategies throughout 2026.
