As real estate investors come to terms with a higher-for-longer rate environment, fixed income investment options present a competitive risk-adjusted alternative to core equity. Coupled with current income, diversification benefits and lending against reset real estate values in today’s environment, the case for private real estate credit continues to be compelling.

Upcoming fund maturities are spurring GP-led secondary opportunities

Fund maturities are another key driver of deal flow in the commercial real estate market this year. After several years of stalled transactions, sponsors are returning to the market to seek liquidity for legacy funds. Limited partners, meanwhile, need distributions from those legacy funds before they can make new commitments.

In the U.S., over 1,700 midsize and smaller funds are maturing over the next couple of years (see Figure 2).³ We expect this to catalyze significant transaction activity—providing ripe ground for general partner-led secondaries as managers look to hold onto their winners for longer. We also anticipate these dynamics to spur additional opportunities for well-positioned investors to deploy capital effectively.

For investors, secondaries potentially offer access to high-quality assets at favorable entry points, portfolio diversification, shorter payback periods, downside mitigation and more. We believe that, given the volume of near-term fund maturities among small to midsize real estate funds, investors have a compelling opportunity to add GP-led secondaries to their non-core real estate allocations.

Improving sentiment suggests opportunities to allocate at reset values in core plus

We see several industry tailwinds that offer real estate investors compelling opportunities to allocate their pent-up capital at reset valuations. These include a 9% increase in transaction activity in 2024⁴ and a 4.5% rise in unleveraged property values over the past 12 months.⁵

With valuations bottoming and prices rebounding, investor sentiment toward core real estate properties has improved. The NFI-ODCE index, which measures the performance of the largest private real estate funds pursuing a core investment strategy, has posted two consecutive positive quarters. Additionally, ODCE core fund redemption queues have declined by $10 billion over the last three quarters, driven by investor recissions, secondary trades and fund redemption payments (see Figure 3).

Yet we don’t expect to see any meaningful cap rate compression in the near term, which means investors are likely to find a better risk-return proposition in core-plus strategies over core. Unconstrained core-plus strategies can benefit from their ability to invest in the alternative real estate sectors with the most constructive outlooks, such as housing, data centers, hospitality and logistics.

The U.S. multifamily supply forecast has fallen to a 10-year low, with new construction down 36% from its peak.⁸ Looking ahead, we see rent growth poised to return amid market absorption. Given limited new supply, we see increasing opportunities to renovate existing properties with potentially attractive returns.

We’re also seeing attractive opportunities in the U.S. alternative housing sectors—namely single-family rental, manufactured housing and senior living.

In single-family rental, demographic trends coupled with the elevated cost of home ownership are supporting demand while new supply is limited. This sector is benefiting from the large Millennial population entering their traditional homebuying years. High interest rates and home prices have made renting more affordable than buying. But the supply for single-family rental is also low: The total number of units for sale has dropped each year since 2018, with an estimated shortage of nearly 4 million homes today.⁹ We’re also anticipating near-term opportunities to purchase unsold single-family rental inventory from distressed homebuilders over the coming year.

In manufactured housing, supply is far from keeping up with demand, largely due to difficult land entitlement and zoning processes. Development of new communities has been essentially nonexistent, and the stock is expected to decline an additional 14% over the next 10 years.¹⁰ The lack of institutional ownership in the manufactured housing market provides investors with attractive entry points and the ability to execute cost savings.

Senior housing is also benefiting from long-term demographic trends. By 2030, the U.S. population 80 years and older is expected to increase by more than 4 million to 18.8 million.¹¹ At the same time the ratio of seniors age 80 and over to familial caregivers aged 45–65 will fall by roughly half.¹²

Yet, once again, supply is low in this sector. Development of senior housing slowed substantially during the pandemic and largely hasn’t recovered. Senior housing construction starts have fallen to just 0.2% of existing inventory, the lowest level in recent history just as demand is starting to grow.¹³ Building more facilities tends to be cost-prohibitive, so we expect demand for existing stock to rise and support rent growth.

Asia Pacific also offers attractive opportunities in alternative rental housing. Australia and parts of Asia have strong operating fundamentals for student accommodation and senior living. The lack of institutional rental spaces in markets such as India presents a significant opportunity for rental housing projects.

Data centers

As AI surges to the forefront of the global economy, we see attractive opportunities to capitalize on the explosive demand for data centers that is expected to far exceed supply through 2025 and beyond. Rental rates for these properties have risen, and we expect they will remain strong—despite market speculation around the release of a new AI model from DeepSeek.

The DeepSeek model delivers performance comparable to leading large language models but reportedly was developed at lower cost. While there is rampant market speculation about the effects of this development, we believe that more efficient AI technology could be net positive for the data sector because innovation such as artificial general intelligence and robotics could drive profitability and overall deployment and consumption of AI-related applications. In other words, cheaper AI would likely only increase demand for AI.

As AI models become more efficient and capable, we continue to expect the demand for data centers to grow, particularly for Tier 1 locations that offer maximum flexibility and support multiple use cases.

While the data-center opportunity is global, we are seeing the most robust opportunity set in the U.S. and Europe today. In both regions, land constraints, onerous permitting processes and power-access issues are creating barriers to entry that limit competition. Europe also offers a potentially significant demand source from sovereigns, as many countries are leaning toward building out their own AI infrastructure ecosystem.

We believe that tight supply in the data center sector will benefit developers with on-the-ground resources, and local relationships will give them an advantage in accessing land.

Hospitality

The hospitality sector benefited in recent years from a post-Covid surge in leisure demand. Although that demand is normalizing, group and business travel is picking up. However, similar to other areas of real estate, we see pockets of distress.

Hospitality is a capital-intensive sector, and many assets have been capital-starved amid tight liquidity in the markets. This is opening up opportunities to buy those assets below replacement cost, add value through efficient execution and eventually monetize them.

We see particularly attractive opportunities in Europe, buoyed by U.S. travelers taking advantage of the strong dollar. What’s more, Europe is dominated by independent hotels, many of which are undercapitalized and underinvested due to elevated construction costs and interest rates. As a result, we have found that many of these independent owners are looking to sell, providing opportunities to partner with international brands that are looking to increase their footprint in Europe.

Operational expertise is essential in the hospitality sector. Owning the best assets and allocating capital intelligently is critical for hotel operators to grow their businesses and achieve strong returns.

Logistics

We are finding attractive logistics opportunities for investors who take advantage of market dislocation and acquire high-quality logistics properties at a discount to intrinsic value.

In the U.S., supply has peaked, with new construction slowing. We expect a resilient economy and increasing e-commerce penetration will continue to drive demand for warehouse space. As declining starts drive down vacancy rates, improving pricing power should help stimulate rent growth.

The story is even stronger in Asia Pacific, where the quality of logistics infrastructure in the industrialized countries still has not yet caught up to modern standards (see Figure 5), creating compelling opportunities to renovate and increase rental income properties. For example, in Australia, projected new supply in 2025 is already 40% pre-committed.¹⁴ The national vacancy rate is one of the tightest globally at 1.9%, demonstrating the high demand for modern logistics facilities and allowing for meaningful rent growth.¹⁵

The investment environment in Asia Pacific is also strong, with a 23% increase in transaction volume in the fourth quarter of 2024 year-over-year.¹⁶ Looking ahead, gross domestic product growth in Japan, India and Australia is expected to accelerate in 2025. We expect demand—and rent growth—for logistics to rise along with these expanding economies.

^Endnotes:

<sup>1. Preqin.
2. Note: Data represents the aggregation of 3.6 million commercial real estate property mortgages, sources from various tax filings from approximately 75% of U.S. counties. While roughly 60% of the loans were originally missing a maturity date, analysis uses a random forest model to impute the missing values. Since the random forest model varies each time it is run, the values shown represent averages across five runs. The raw data does not include roughly 25% of counties, so S&P created another model using gross county product and the number of properties in the county to estimate the total mortgage amounts in the missing counties. Ultimately, these were relatively minimal amounts compared to the overall market.
3. Preqin. Assumes a 10-year fund life.
4. Pension Real Estate Association, “Compendium of Statistics,” February 12, 2025.
5. CPPI.
6. NFI ODCE index.
7. CBRE, March 2024.
8. Colliers, “Quick Hits | The Composition of Housing Starts is Changing,” February 20, 2025.
9. Realtor.com, “Housing Supply Gap Reaches Nearly 4 Million in 2024,” March 10, 2025.
10. Moody’s Analytics.
11. The Wall Street Journal, “Aging Boomers Are About to Rekindle the Senior-Housing Market,” February 11, 2025.
12. AARP Public Policy Institute, “The Aging of the Baby Boom and the Growing Care Gap: A Look at Future Declines in the Availability of Family Caregivers.” 
13. NIC Map Vision, “Go long in senior housing: NIC MAP Vision data reveals a $275 billion investment shortage in senior housing developments across the country by 2030,” June 26, 2024.
14. CBRE, "Australia’s Industrial and Logistics pre-committed supply remains elevated,” January 16, 2025.
15. CBRE, "Australia Industrial & Logistics Vacancy Report H1 2024” July 3, 2024.
16. JLL, ”Asia Pacific Capital Tracker Q4 2024”, January 20, 2025.</sup>

^Disclosures

^{This commentary and the information contained herein are for educational and informational purposes only and do not constitute, and should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This commentary discusses broad market, industry or sector trends, or other general economic or market conditions. It is not intended to provide an overview of the terms applicable to any products sponsored by Brookfield Asset Management Inc. and its affiliates (together, "Brookfield").}

^{This commentary contains information and views as of the date indicated and such information and views are subject to change without notice. Certain of the information provided herein has been prepared based on Brookfield's internal research and certain information is based on various assumptions made by Brookfield, any of which may prove to be incorrect. Brookfield may have not verified (and disclaims any obligation to verify) the accuracy or completeness of any information included herein including information that has been provided by third parties and you cannot rely on Brookfield as having verified such information. The information provided herein reflects Brookfield's perspectives and beliefs.}

^{Investors should consult with their advisors prior to making an investment in any fund or program, including a Brookfield-sponsored fund or program.}