The traditional reasons for investing in real estate—durable income, inflation protection, diversification and low volatility—have been challenged during this cycle, unlike private equity, private credit and infrastructure, where valuations have become increasingly elevated.
According to Giorgia Baistrocchi, Head of Investor Relations – Real Estate & Infrastructure at Pictet Alternative Advisors, global real estate entered 2026 trading at a substantial discount relative to other risk assets such as listed equities and private credit, both of which have appreciated significantly. If that discount reflected structural deterioration, it would represent a value trap. Instead, she argues that it is largely technical in nature and creates “the clearest entry point in a generation.”
Transaction activity supports the thesis
According to her analysis, global real estate transaction volumes reached $873 billion in 2025, an increase of 11.7% versus 2024 and the second consecutive annual increase since the 2023 trough. Activity was concentrated in residential, prime office and industrial assets (Source: McKinsey / RCA-MSCI), suggesting that demand remains healthy.
“In fact, real estate is the only major private asset class whose weakness is being driven more by technical dislocations than by deteriorating fundamentals. That said, in an environment of higher interest rates and lower liquidity, discipline is essential because the truly investable universe has narrowed. The most attractive opportunities are no longer based on a broad macroeconomic recovery, and institutional investors are rebuilding exposure selectively rather than through passive allocations,” Baistrocchi says.
Four of the five forces that compressed valuations are fading
Baistrocchi argues that four of the five forces that have weighed on real estate valuations and liquidity over recent years are now coming to an end. For more than a decade, capitalization rates offered a substantial premium over the risk-free rate. With the U.S. 10-year Treasury yield now around 4.6%, that spread has largely disappeared, bringing the market back toward historical norms.
“In 2022, while listed portfolios declined sharply, private real estate valuations remained relatively stable. As equities and credit subsequently recovered, asset allocators facing redemption requests rebalanced portfolios by selling real estate—not because they were overweight, but because it was the most readily available illiquid asset to generate liquidity. Those were forced sales that should reverse as portfolio allocations normalize. In addition, the quarterly appraisal process typically used in private real estate smoothed volatility, causing valuations to continue adjusting downward while listed and credit markets had already recovered,” she explains.
Private credit displaced real estate
She also notes that real estate lost part of its appeal as an income-generating asset to private credit, an asset class that has now grown to approximately $2.2 trillion in senior floating-rate debt with lower sensitivity to changes in interest rates. For some managers, private credit now represents a larger share of assets under management than private equity.
However, she points out that private credit has recently faced redemption restrictions, valuation concerns and litigation involving retail-oriented vehicles, where secondary market discounts have reached as much as 35% relative to reported net asset values.
“As a result, investors have begun to reassess the value of the liquidity premium and the perceived liquidity advantage of private credit. Moreover, real estate and private credit were both marketed as independent sources of income, yet they share many of the same characteristics: they are illiquid assets, they can experience mismatches between liquidity and redemptions, and price discovery is often delayed,” she says.
In her view, the key difference is that much of the valuation adjustment has already taken place in real estate, whereas private credit is only beginning that process. Although she does not see systemic risk—default rates in direct lending remain below historical averages and current stress is largely concentrated in semi-liquid retail vehicles—she believes private credit now represents less competition for real estate allocations.
Infrastructure: the new competitor
Turning to infrastructure, Baistrocchi highlights that return dispersion among managers is significantly lower than in real estate. This reflects the sector’s long-duration regulated contracts, inflation-linked revenues and sovereign or quasi-sovereign counterparties.
“Infrastructure offers predictable income streams protected against inflation—the very value proposition that real estate has marketed for the past three decades,” she argues.
Data centers, energy transition assets, telecommunications towers, fiber networks, senior housing and student accommodation have become some of the most sought-after assets among infrastructure managers. Many institutional investors have even created dedicated strategic infrastructure allocations funded by reducing their real estate exposure.
Even so, she warns that infrastructure also shares some of the vulnerabilities currently emerging in private credit: illiquid assets, semi-liquid vehicles and potential gaps between official valuations and secondary market pricing.
“The question is whether the stability of infrastructure cash flows will be sufficient to protect against future liquidity mismatches and confidence shocks. For now, infrastructure represents a significant competitive force for real estate,” she says.
Selectivity has become essential
Finally, Baistrocchi argues that the source of real estate returns has fundamentally changed. In a higher-rate environment, returns can no longer rely on cap-rate compression, multiple expansion or inexpensive leverage.
“Today, the market values buildings more like operating businesses than bond-like income streams. Dispersion between assets continues to widen, making security selection more important than ever,” she says.
Against this backdrop, value-add strategies—income-producing assets requiring operational improvements, repositioning or redevelopment—accounted for 55% of global real estate fundraising during the first quarter of 2026, while opportunistic strategies declined.
In logistics, secular demand continues to be supported by resilient supply chains and reshoring trends, although speculative development has slowed considerably. Office remains far from a full recovery, but improving lending activity and opportunistic buyers targeting supply-constrained prime offices suggest selective opportunities are emerging.
Global investment volumes increased 15% year over year during the first quarter of 2026, led by North America (+19%), followed by Asia-Pacific (+15%) and Europe, the Middle East and Africa (+14%). By sector, investment remained concentrated in multifamily residential, industrial assets and prime offices.
Industrial accounted for 47% of global fundraising, while data centers stabilized at around 25%. North America attracted 65% of investment flows into the data center segment, up from 30% previously, reflecting growing investor demand for regional rather than global strategies.
Regarding capital structures, Baistrocchi sees the most compelling opportunities in recapitalizations, preferred equity and structured equity investments, as well as single-asset continuation vehicles.
“Preferred equity is particularly attractive for acquiring high-quality assets financed under a very different interest-rate environment. Recapitalization opportunities should continue expanding as the refinancing wall approaches. By contrast, passive core strategies—which prioritize stable, lower-risk assets—are in a weaker position because higher risk-free rates make it increasingly difficult for assets with limited upside potential to generate sufficient excess returns,” she concludes.
