US commercial property values have been through a harsher repricing than Europe's, Morgan Stanley Investment Management's head of global real assets John Klopp has argued.
During a panel discussion on global capital market trends at ULI Europe's annual conference, AXA IM Alts' global head Isabelle Scemama suggested that property values in Europe had corrected faster and were likely to be more accurate than those in the US.
She explained this was because the US market continued to face greater volatility and uncertainty than countries across the Atlantic, thanks to the impact of tariffs, higher interest rates and an oversupply of properties, all of which could shift values again.
But Klopp, who is also a managing director of Morgan Stanley, argued that property repricing in the US had ended, adding: "I think that the US has corrected harder than Europe but had reached a higher level to start, there is no question about that. The markdowns are much more distinguished."
The duo also disagreed on the appeal of investing into Europe over the US, with Klopp highlighting lower growth in Europe. But Scemama argued there were opportunities, such as student accommodation: "You have positive yields in Europe. At the end, if you pick the right fundamentals in Europe you can have some very interesting assets."
They did agree that European residential real estate represented a big opportunity over the next 12 to 24 months, with the Morgan Stanley boss also flagging US senior housing as another area of interest. "10,000 Americans turn 80 everyday," he said.
Volatility and disruption affecting the property investment market was one of the themes discussed by the panel, which also included CPP Investments' global head of real assets for Europe Max Biagosch, earlier on in the discussion.
One tactic Scemama said many investment managers had deployed over recent times was diversifying their wider investment portfolios. She said: "After Covid, after the repricing, interest rates [and] everything that we are seeing all over the world, nobody wants to put their eggs in one basket. So it is geographic [focused], but it is also highest classes."
Biagosch added: "We've actually run a much more diversified portfolio, both in terms of assets but also geographies, compared to what that optimal portfolio would have been for the last 10 years.
"We can see that we are starting to benefit from diversification in a way that we didn't see in the last 10 years."
Data centre attraction
Infrastructure was one asset type that the panellists said offered "very strong opportunities" across global capital markets, with energy projects as well as data centres falling under this category.
Biagosch said: "Infrastructure has really interesting pockets in geographies. So India, that was very expensive for a while, that has become a little bit more attractive in pricing. So while we moved out a little because we thought it was very expensive over the last couple of years, we've gone back in."
Scemama added that AXA IM Alts had invested into battery storage, highlighting that there was less capital in Europe available for infrastructure. "You have this imbalance of capital available and quite a bit more stable and interesting investment opportunity," she added.
Klopp said that while Morgan Stanley had invested into the data centre industry, including a deal to invest in data centre developer Flexential last October, he said that the group was staying away from hyperscaler data centres due to the huge competition.
"One of the big questions we have with all this capital flooding into one particular type of data centre - where's the exit? Given the scale and given the nature of the [asset]," he said.
Biagosch argued larger data centre projects were "still worth backing" due to "very material, additional demand" that needed to be serviced with infrastructure. But he said CPP Investments was "increasingly discerning" about what type of data centres they were investing in, avoiding speculative data centre builds and looking at other locations.
He added: "We have started to be a lot more active in geographies like India, north Asia, outside of the US where the returns for the risk that you are taking are materially more attractive and it's a less competitive, less transparent market.
"If structured well, and these are truly critical pieces of infrastructure, we think that they will be high-yielding, cash-yielding assets for a long time, with a very low-risk profile and there should be takers for that."
AI agent
With an influx of data centres projects looking to help power the advancement of artificial intelligent technologies, such as ChatGPT, the panel discussed the use of programmes such as this in the property investment industry.
Klopp called real estate "prehistoric" in its adoption of technologies such as AI, revealing that his firm was coming to the end of years of work to enable staff to use AI to assist with managing investment portfolios.
He said: "We started four or five years ago, simply trying to corral, and cleanse and house all of our data from all of our portfolios around the world and we couldn't find a third party that suits our needs.
"So we backed a start-up and have reached a point where we have it, we are using it and we are just on the verge of adopting and incorporating AI into how we use the data."
Biagosch added that staff at CPP Investments were using ChatGPT 10 times a day on average, with power users "seemingly us[ing] it for everything they do", as he described the greater adoption of the tool more widely across the firm.
He said: "We use it very actively to support the investment process, close to, but not quite there, an 'agent bot'. We use it very actively to improve investment materials and to give recommendations to teams very specifically as to how to improve a single page in an investment document.
"We are absolutely at the foot of what I think is going to be one of those accelerating technology curves, where increasingly we will hopefully hand off the lower value-added tasks to the agent [bot] and move the real staff to slightly more interesting, more fulfilling [work]," he added.