European property market expo-sed
#Week40 saw the Innesco team travel to Munich for Expo Real, one of Europe’s biggest investment and real estate trade fairs.
Traditionally a bellwether for the European investment market, this year’s Expo offered up more questions than answers. What is going to happen to interest rates? When will sellers realise a price correction? When will the market recover? And are any deals being done?
As an asset class typically dependent upon leverage, real estate is particularly sensitive to interest rates. Uncertainty on this front has stymied investment activity for the past three quarters at least. But with central banks starting to hold the line, there is growing hope that the situation might have finally stabilised.
Stable interest rates are a prerequisite for the investor confidence that is needed to fuel transactional activity. The recent notable absence of this confidence has reduced activity on the buy side, while plummeting asset values have diminished activity on the sell side for all but the most distressed of sellers. This tendency to “extend and pretend” has masked the true state of the European investment market for the past 9-12 months, but with debt markets stablising and sellers beginning to accept repricing, there are positive signs that point towards an uptick in transactional activity. Meanwhile, there is a wave of refinancing due to wash over the market during the next few years that will either rebalance or redefine the sector for the next cycle.
Overall, there is a sense that a market that has been underpinned by cheap debt for the best part of a decade is undergoing an evolution. This is where the sector as a whole needs to employ creative, as well as financial, acumen. Investors need to embrace new sources of finance and developers and asset managers need to get innovative with the places they are building. Alongside the established banks, investment funds, private equity houses and brokers, Expo also played host to businesses like Bricks and Stories and This is Really Happening that are delivering genuinely ground-breaking solutions to real estate problems. These solutions – viewed through a creative lens and delivered by experts from the worlds of advertising, branding and hospitality – have the power to create points of difference for struggling assets, driving and enhancing values in the process.
As for any market in a state if flux, where some see problems, others will see opportunity. Those who embrace change and are prepared to challenge the status quo will likely end up better prepared and better equipped for the future of real estate.