Credit: Adobe StockThe Core Strategy Reset: Defining Secure Investment in an Age of Disruption
Insider insights reveal the new definition of “core” in today’s real estate, with a focus on prime properties and stable cash flow
October 21, 2025Real Estate
Written by Helen Richards
Key Takeaways:
The bedrock of long-term property investment - the core strategy - is undergoing a profound transformation. No longer defined simply by low-risk and low-leverage, the new core must contend with persistently high interest rates, stringent ESG demands, and a fundamental shift in occupier expectations. The industry consensus is clear: the threshold for a truly secure core asset has become dramatically higher.
For premium assets, the ability to generate superior net operating income (NOI) can compress the cap rate differential against other investments, making them potentially more secure than fixed-income instruments, such as bonds, which are highly sensitive to interest rate fluctuations.
Traditional lease agreements are now seen to have a major vulnerability: they are solely dependent on the tenant's financial health. If a key tenant defaults or faces distress, the investor is left with a sudden income black hole and an operational burden.
In response, many investors are embracing management contracts or adopting an operational real estate (OpRE) approach. This strategy allows the investor to secure income while retaining the contractual ability to quickly take over and control the property's operations in case of tenant failure. This active management model is a proactive layer of risk mitigation, ensuring better resilience and stability of cash flow.
PBSA offers strong appeal due to long-term structural demand and leases backed by stable entities like universities or government bodies. (Credit: Freepik)
Sectors like PBSA offer strong appeal due to long-term structural demand and often feature leases backed by stable entities like universities or government bodies, providing excellent risk profiles akin to essential infrastructure.
Infrastructure investors are increasingly looking at these operationally-heavy real estate assets, drawn to their inflation-linked characteristics and long investment periods. However, experts caution against viewing these sectors as simply "infrastructure-lite", stressing the difference in debt structures and requirement for specialised operational expertise, which introduce complexity absent in traditional core.
Residential assets remain a favoured defensive strategy, offering capital preservation and resilient income driven by the global housing crisis and high demand for quality rental stock, despite their inherently low yields. The Built-to-Rent (BTR) sector is seen as a major growth area given these strong fundamentals.
Well-located offices remain a strong conviction play due to tenant leverage and historical performance, while high-street retail in top locations is also considered resilient, further supported by retail tenants often handling the CapEx and fit-out, and thus minimising the investor's operational workload.
Ultimately, the market consensus is that the new core is limited to high-level buildings in prime locations with top tenants, and these "trophy" assets are increasingly the domain of large institutional investors and sovereign wealth funds capable of underwriting their high cost and long-term holding periods.
Despite the challenges and the narrowing of the field, core remains the backbone of the market for long-term capital seeking secure, durable revenue streams.
This content was first featured in the GRI Institute’s Summit Spotlight: Europe GRI 2025 Day 2. Access the full report below:
Key Takeaways:
- The new core strategy demands prime assets in prime locations that deliver secure, predictable revenue while minimising near-to-mid-term CapEx.
- Investors are moving toward an Operational Real Estate (OpRE) approach, integrating operational control to mitigate risk and secure cash flow stability in case of tenant failure.
- The search for stable income streams has opened doors to alternative sectors such as PBSA and life sciences being considered for core investment.
The bedrock of long-term property investment - the core strategy - is undergoing a profound transformation. No longer defined simply by low-risk and low-leverage, the new core must contend with persistently high interest rates, stringent ESG demands, and a fundamental shift in occupier expectations. The industry consensus is clear: the threshold for a truly secure core asset has become dramatically higher.
The New Definition: Prime, Resilient, and Low-CapEx
The old metric of a simple, long-term lease is proving obsolete. In today’s reality, a property with a long lease but structural obsolescence is a liability, not a core holding. The new definition focuses on absolute quality and security of income.- Prime Assets in Prime Locations: A core asset must be a high-quality building situated in a top-tier area, guaranteeing enduring tenant appeal and market liquidity.
- Reliable Cash Flow & Minimal Mid-Term CapEx: The ideal core asset delivers secure, predictable revenue while minimising the financial burden of large CapEx in the near to mid-term. This focus on capital preservation is particularly essential in a high-cost environment.
Navigating High Interest Rates
While elevated interest rates in recent years have prompted market-wide price adjustments in real estate, the most exceptional core properties have demonstrated remarkable resilience. This stability is attributed to continuous rental growth and sustained high tenant demand.For premium assets, the ability to generate superior net operating income (NOI) can compress the cap rate differential against other investments, making them potentially more secure than fixed-income instruments, such as bonds, which are highly sensitive to interest rate fluctuations.
Strategic Shift: The Integration of Operators
A significant and growing trend in the core investment space is the move away from a purely landlord-tenant relationship towards a more vertically integrated operational model.Traditional lease agreements are now seen to have a major vulnerability: they are solely dependent on the tenant's financial health. If a key tenant defaults or faces distress, the investor is left with a sudden income black hole and an operational burden.
In response, many investors are embracing management contracts or adopting an operational real estate (OpRE) approach. This strategy allows the investor to secure income while retaining the contractual ability to quickly take over and control the property's operations in case of tenant failure. This active management model is a proactive layer of risk mitigation, ensuring better resilience and stability of cash flow.
PBSA offers strong appeal due to long-term structural demand and leases backed by stable entities like universities or government bodies. (Credit: Freepik)The Alternative Sector Question
The search for defensive, long-dated income streams has led investors to debate whether alternative sectors - such as purpose-built student accommodation (PBSA) and life sciences - represent the new definition of core.Sectors like PBSA offer strong appeal due to long-term structural demand and often feature leases backed by stable entities like universities or government bodies, providing excellent risk profiles akin to essential infrastructure.
Infrastructure investors are increasingly looking at these operationally-heavy real estate assets, drawn to their inflation-linked characteristics and long investment periods. However, experts caution against viewing these sectors as simply "infrastructure-lite", stressing the difference in debt structures and requirement for specialised operational expertise, which introduce complexity absent in traditional core.
Viable Core Strategies and Market Access
The narrowing definition of core has intensified competition for truly high-quality assets, effectively limiting transaction access for smaller players.Residential assets remain a favoured defensive strategy, offering capital preservation and resilient income driven by the global housing crisis and high demand for quality rental stock, despite their inherently low yields. The Built-to-Rent (BTR) sector is seen as a major growth area given these strong fundamentals.
Well-located offices remain a strong conviction play due to tenant leverage and historical performance, while high-street retail in top locations is also considered resilient, further supported by retail tenants often handling the CapEx and fit-out, and thus minimising the investor's operational workload.
Ultimately, the market consensus is that the new core is limited to high-level buildings in prime locations with top tenants, and these "trophy" assets are increasingly the domain of large institutional investors and sovereign wealth funds capable of underwriting their high cost and long-term holding periods.
Despite the challenges and the narrowing of the field, core remains the backbone of the market for long-term capital seeking secure, durable revenue streams.
This content was first featured in the GRI Institute’s Summit Spotlight: Europe GRI 2025 Day 2. Access the full report below: