Ep.47: Building Value in Europe's Real Estate Markets Amidst Economic Shifts - Krysto Nikolic - Global Head of Real Estate - ICG
Oct 1, 2024
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Krysto Nikolic, Senior Managing Director and Global Head of Real Estate at ICG, shares his journey from a small town in Scotland to leading strategic real estate investments. He discusses the evolving landscape in Europe, highlighting the impact of geopolitical shifts on market dynamics. Krysto explores underappreciated asset classes, particularly in social infrastructure and logistics. He emphasizes the importance of local relationships and insights while navigating the complexities of the post-COVID real estate sector.
The industrial real estate sector in Europe is set for growth due to rising demand influenced by geopolitical supply chain concerns.
ICG is leveraging localized investment strategies and strong corporate relationships to capitalize on diverse real estate opportunities across Europe.
Deep dives
Future of Industrial Real Estate in Europe
The future of industrial real estate in Europe appears promising, with projections indicating a lack of oversupply in high-quality industrial spaces for the next five to ten years. Factors contributing to this outlook include ongoing global trends such as onshoring and reshoring, which have been prompted by geopolitical concerns surrounding supply chain vulnerabilities. Companies and governments are increasingly recognizing the need to enhance the resilience of their supply chains, leading to more investments in industrial properties. As a result, strategic investments are being made in industrial real estate, which are expected to yield significant returns as demand continues to rise.
ICG's Approach to Sale and Leaseback Investments
ICG has positioned itself as a leading player in the European sale and leaseback and triple net lease market, focusing on creating a competitive edge through its unique strategies. The firm emphasizes underwriting single-name credit risks and providing downside protection, which is paramount in navigating the complexities of corporate real estate transactions. Unlike the mature market in the United States, the European sale and leaseback sector presents a larger investable universe as many corporations look to divest their real estate holdings. ICG's relationships with European corporates give them first access to opportunities, enabling them to capitalize on trends of rationalizing balance sheets.
Navigating the European Real Estate Landscape
The European real estate landscape is characterized by its diverse countries and market dynamics, making it essential for investors to adopt a localized approach. As macroeconomic challenges vary from country to country, specific opportunities arise in markets like Germany and the UK, where ICG has strategically invested. For instance, in Germany, increased financial pressures on corporates have led them to seek liquidity through the sale of real estate, while the UK market has seen core funds retreat, creating opportunities for ICG to invest at favorable pricing. Understanding the intricacies of local markets allows firms like ICG to identify potential investments amid an overall sluggish economic backdrop.
Trends in Residential and Logistics Markets
ICG's investment strategy prioritizes sectors such as logistics and residential real estate, which are currently experiencing significant demand amid persistent supply shortages. The logistics market, in particular, benefits from ultra-low vacancy rates, making it an attractive area for investment as urbanization trends continue to rise. Simultaneously, the residential sector faces challenges due to insufficient new housing development, presenting opportunities for ICG to finance construction projects as banks adopt a more cautious lending stance. These sectors are anticipated to generate robust returns through strategic investment, bolstered by favorable market conditions and demographic trends.
Krysto Nikolic is a Senior Managing Director and Global Head of Real Estate at ICG.
Before joining ICG, he was Head of European Real Estate at Starwood Capital Group, serving on its Global Investment and Operating Committees.
Previously, Krysto was a Partner at TPG and started his career at Goldman Sachs International.
Krysto has led over $14 billion of real estate acquisitions and served on the Board of Directors of multiple portfolio companies and real estate platforms.