Investing beyond the headlines: finding alpha in unfashionable sectors and markets

This flight of capital often overshoots, and instead of digging deeper into the fundamental analysis, it turns into a total aversion to entire markets or sectors. This is where opportunities for alpha begin to emerge, when the consensus stops differentiating between actually impaired assets and those merely caught in a declining sentiment.

Seasoned investors know that headlines rarely tell the full story, or crucially, what the story may be in a few years’ time. Real estate as an asset class is suited to a longer-term investment horizon, but near-term uncertainty opens an opportunity to capture high-quality assets at attractive pricing.

Take construction activity. A headline like “11-year low” signals a lack of confidence and/or structural challenges, yet for experienced investors able to take a long-term view, it signals future scarcity. Fewer developments today mean tighter supply tomorrow, with reduced pipelines supporting rental growth when markets stabilise as long as the demand side of the equation remains robust. The cyclical nature of real estate means the downturn sets the stage for a future recovery. The inverse is also true, with market exuberance creating oversupply that results in falling rents followed by declining capital values. Capital allocators may now be shifting to in-vogue themes such as AI; however, questions are already emerging on the unit economics of data centre mega-projects, while commentators are drawing comparisons to previous infrastructure booms and busts like railways in Victorian Britain or dark fibre in the early Noughties.

At Greenridge, we saw this disconnect between sentiment and what was actually happening on the ground in retail parks a few years ago, with the retail sector as a whole tarred with the same black brush after the explosive growth of e-commerce fuelled further by the onset of the COVID pandemic. We all witnessed the resurgence of that market and the profits that were made by ‘enlightened investors’. You can now see the disconnect playing out in offices. Occupational demand is not falling across the board; it’s a declining tolerance for offices to be just walls and desks in locations lacking strong transport connectivity or proximity to local amenities. Prime offices with amenities and strong ESG credentials continue to attract tenants and demonstrate resilient occupancy, which eventually will lead to a compression in yields and capital value growth for these select assets. It’s not a question of ‘if’ but ‘when’. This is true not just in London’s West End and the City but also in selective pockets within core regional cities too. While London now represents relative value, we see the pricing gap emerging between the capital and the regions, the widest since the Great Financial Crisis, as creating a compelling arbitrage opportunity for investors.

For investors comfortable with contrarian positioning, you can access a more favourable space to play in, with reduced competition for quality assets. Contrarian investing is not about buying what everyone else hates: it is about identifying where sentiment and fundamentals separate, which, in the UK today, is becoming increasingly visible if you know where to look. It is in these mispriced, high-quality assets with strong property-level fundamentals, situated in submarkets with rapidly shrinking supply and healthy ongoing demand, where investments that will outperform in the next cycle can be found. With rigorous underwriting, patient capital deployment and a selective lens rooted in bottom-up analysis, investment managers can capture the value that others overlook and generate significant upside for themselves and their investor partners. Key to staying disciplined is creating true alignment of interest between yourself and your clients, which is why at Greenridge, we have committed to a model of significant co-investment with all our capital partners.

Markets move in cycles, but headlines often freeze them into one-dimensional stories. For those willing to step back from the noise and lean into discomfort, these ‘unfashionable sectors’ actually offer the foundations for alpha. From our 30+ years investing in UK real estate, we can confidently tell you that outperformance rarely comes from following the herd or looking to ride beta tailwinds.