Repriced Markets Could Rebound But Debt And Bank Caution Remains
As 23,000 real estate professionals from around the world gathered in Cannes to sip rosé and talk shop at the MIPIM property conference, Swiss financial regulators were beginning to put together the deal that would see UBS buy Credit Suisse in an emergency rescue deal.
Real estate, ever bullish, was looking on the bright side at a conference that is one of the bellwethers when it comes to the real estate investment market, used by investors to gather and gauge sentiment.
For those viewing the world more optimistically, those European markets that have repriced quickly are best positioned to benefit from significant dry powder capital was one of the core messages to come out of the conference, along with the fact that Europe perhaps looks a better bet than the U.S. right now.
However, the latest banking shockwaves after California-based Silicon Valley Bank collapsed and Credit Suisse needed to be rescued might prompt another investment pause, as funds and financiers wait to see the extent of the fallout.
CBRE Managing Director of Continental Europe Marco Hekman told Bisnow that the UK, the Netherlands, Germany and Sweden were among those markets to have been fastest to correct, with pricing off around 20%-30% from their peak in broad terms across asset classes. That left those markets well-positioned for investment, with a number of institutions focused on real estate again, he said.
This comes after a decline in capital values as interest rates rose as central banks attempt to curb inflation. However, Hekman had a positive outlook about activity levels and also about fresh realism in many markets.
“It’s not just about taking the pain [in valuations], it’s about the truth," he said. "But I remain optimistic about a number of sectors. I think that operational real estate, including data centres, hotels and holiday parks, are all performing well. And I also think that there is more interest in retail again."
Hekman also foresaw that the commercial real estate sector would hold up better in Europe than it has in the U.S., because there has been a stronger return to work across European markets than there has been in North America.
Colliers’ CEO UK and Ireland Tony Horrell also said that he felt the UK was leading the way in terms of repricing and as a result should see recovery sooner than many other European markets.
“Looking across the various markets those that reprice the most quickly will be those that recover the quickest. The UK is ahead of most other markets in its trajectory of repricing,” he said, adding that realistic repricing is necessary to stimulate demand, particularly in markets that have slowed or stalled.
“In the UK it’s all about the economy, as the economy brings confidence. There’s no simple solution and the market is doing the right things but there has to be a repricing of real estate to get transactions going."
Horrell added that the past year had seen massive change for the real estate industry. “A year is a long time in real estate. Last year we were talking about the beginning of the war in Ukraine and that’s ongoing. We’ve also had a year of interesting changes in different market segments and activity. Rising interest rates have also changed the dynamics and risks of real estate,” he said.
Need For Mixed-Use
However, Commerz Real CEO Henning Koch said that the creative mixing of uses would be necessary in order to reinvigorate central business districts and pointed to the decline in footfall in urban centres as people continue to mix working from their office and from their homes.
Koch said that occupiers and landlords needed to create more compelling reasons for people to come to the office, “beyond a screen and a desk”.
That means that offices need to be configured with more amenities and facilities and that real estate mixes need more imagination in order to reactivate spaces, he said. It also requires companies to think about wellbeing and health — issues that even a few years ago would not have been considered part of the real estate remit.
While many attendees at MIPIM typically see the annual event as the launchpad for the rest of the year, Patrizia CEO of European Real Estate Philipp Schaper warned that the market and activity is still too unbalanced and that the issue of whether buyers or sellers would move first has yet to be resolved.
German fund manager Patrizia has been preparing for the new market phase by expanding outside Europe, and by acquiring companies in expanding sectors.
London Safe Haven
Amid everything, the current uncertainty — which has only got worse since MIPIM — could favour London, according to Melbourne-based Australian superannuation fund AustralianSuper. Its investment director, Victoria Stanley, said that the completion of major infrastructure projects, such as the Elizabeth Line, and a cautious return in confidence among real estate players, had helped boost the city post-pandemic.
"London pricing remains attractive relative to other European markets," she said, while addressing the London Stand in Cannes. "There's still demand for the best-quality stock. And London has proved more resilient to the work-from-home change than other global cities like New York.
"We think these trends are going to continue. London is still our No. 1 European city for investment. When we look back in a few years, I think 2023 will look like a vintage year for capital in central London."
