THE RISE OFOPERATIONAL REAL ESTATE - A new era of value creation through property investment

The next phase of real estate value creation will be defined not only by the quality and location of assets, but increasingly by the ability to unlock their operational potential. The real estate investment landscape is undergoing a structural transformation. While traditional real estate continues to play an important role in institutional portfolios, rising interest rates, evolving working patterns, increasing regulatory requirements and changing market dynamics are encouraging investors to explore alternative strategies capable of delivering attractive risk-adjusted returns. Historically, real estate investment has been primarily associated with property ownership, contracted rental income and capital appreciation. Today, however, value creation increasingly extends beyond the physical asset itself, reflecting a broader shift from passive property ownership towards active management of income-generating assets. Against this backdrop, Operational Real Estate (OpRE) is emerging as an increasingly important segment of the property investment market. Unlike traditional real estate, where returns are largely driven by rental income from tenants, OpRE links investment performance, either wholly or partially, to the revenues and profitability of the businesses operating within the property. This approach reflects a fundamental evolution in how real estate is valued, managed and experienced. Property is no longer simply about providing physical space; it is increasingly about delivering services, creating experiences and maximising the commercial potential of the underlying asset. Changing consumer expectations, demographic trends and evolving business models are accelerating this transition. Institutional investors are increasingly attracted to sectors supported by strong demand fundamentals, flexible pricing structures and opportunities to capture additional value through operational performance. Hospitality, student accommodation, senior living and other specialised real estate sectors illustrate this evolution. Although many of these asset classes originate from traditional property sectors, their investment performance is more closely connected to the quality of the services provided, customer demand and the effectiveness of the operating business.

From ownership to operational performance

One of the principal attractions of Operational Real Estate is its potential to generate enhanced returns by capturing a share of the profitability created by the asset operator. Depending on the investment structure, investors may participate in operating performance through turnover-linked leases, hybrid rental arrangements or more direct exposure to the underlying business. This operational dimension can create additional opportunities for income growth, portfolio diversification and value creation, while offering greater flexibility to respond to changing market conditions and, in certain circumstances, inflationary pressures. However, these opportunities come with additional complexity. Compared with traditional property investments, OpRE requires a deeper understanding of business operations, market positioning, revenue management and operator performance. Its historically higher perceived risk reflects this greater operational exposure, although the potential for enhanced returns on invested capital can be significant. Ultimately, the growing institutional interest in Operational Real Estate reflects a broader recognition that successful real estate investment increasingly depends on combining property fundamentals with operational expertise and active asset management. As the sector continues to evolve, the ability to select the right assets, establish partnerships with experienced operators and optimise business performance will become increasingly important in delivering sustainable income, attractive risk-adjusted returns and long-term capital appreciation.

Why hospitality is at the forefront

Hospitality is at the forefront of the shift from simply owning real estate to unlocking value through operations, services and customer experience. Unlike traditional property investments, hotels combine real estate ownership, hospitality operations and brand-driven value creation, offering investors the opportunity to capture returns not only from the underlying asset but also from the performance of the operating business. Hotel investments are inherently dynamic. Their performance depends on the ability of operators to manage fluctuating demand, optimise room rates, control operating costs and deliver high-quality guest experiences. This operational complexity creates opportunities to enhance profitability and generate additional value through active asset management, strategic positioning and brand recognition. The growing appeal of hospitality within Operational Real Estate is underpinned by three key structural drivers: demand, flexibility and diversified revenue streams.

Three structural drivers of hospitality

1. Structural Demand Growth The continued expansion of global tourism, rising international travel and an expanding global middle class are supporting long-term demand for hospitality assets. At the same time, changing consumer preferences and the increasing importance of lifestyle and experiential travel are creating opportunities, particularly in luxury and upper-upscale hospitality. Well-positioned hotels in established destinations with strong demand fundamentals and limited new supply can benefit from these trends, supporting occupancy, pricing power and long-term asset value.

2. Operational Flexibility and Dynamic Pricing Unlike traditional real estate assets, where rental income is generally determined by long-term lease agreements, hotels operate with dynamic pricing models that allow room rates to be adjusted daily in response to demand, seasonality and market conditions. This flexibility enables operators to optimise occupancy, average daily rates (ADR) and revenue per available room (RevPAR), while providing the potential to respond more effectively to inflationary pressures and changing market dynamics. The ability to actively manage pricing and operating performance represents a key competitive advantage, although profitability ultimately depends on effective cost management and the strength of underlying demand.

3. Multiple Revenue Streams and Value Creation Hotels offer opportunities to generate income beyond room revenues through restaurants, bars, wellness facilities, events, workspaces, branded residences and other complementary services. These diversified revenue streams can enhance asset productivity, attract both international travellers and local communities, and reduce dependence on accommodation revenues alone. Brand positioning, service quality and guest experience also play an increasingly important role in driving customer loyalty, pricing power and overall asset performance.

An evolving allocation landscape

Following a more cautious investment environment in 2025, the 2026 Savills survey highlights renewed institutional appetite for Operational Real Estate, with an increasing proportion of investors expecting to expand their allocations over the next three years. This growing interest reflects a broader shift in investment strategies, as institutional investors seek opportunities that combine long-term income stability with operational upside and capital appreciation potential.