Change is coming – but patience is key at EXPO REAL
With more than 40,000 participants from 75 countries and regions attending, Expo Real, held in Munich last month, can provide a good indication of general sentiment in the European real estate market. And whilst challenging market conditions persist, event attendees Max Kloosterhuis (Senior Director – Corporate Services in the Netherlands), and Vincent Van Den Brink (Commercial Director in Luxembourg) believe there is cautious optimism in the air as we head into 2025…
There’s no avoiding the fact that 2024 has continued to provide challenging economic conditions for the European real estate market. High interest rates, inflation and market volatility have all impacted financing, valuations and deal flow.
“There’s continued to be a mismatch this year with regards to valuation and the price investors are willing to pay, largely because financing is still expensive,” says Max. “Traditional banks are cautious about providing finance at this moment in time, or they need to have certain guarantees. And external finance providers like debt funds tend to carry higher interest rates. That creates a bit of a mismatch when it comes to trying to make a financial model work.”
But Expo Real this year provided a sense that the sector is a little more opportunistic, with the promise of conditions easing heading into 2025. Figures provide some optimism – inflation in Germany has dropped below 2%, for instance, whilst asking prices have largely stabilised and there is growing interest in investment properties, as investors look to offset high interest rates with optimum rental yields.
“What we’ve seen is that, for investors with equity and where no debt financing is required, it can actually be a very interesting market to acquire specific assets,” explains Vincent. “Certain sectors of the market are still seeing activity as a result – trophy assets or assets such as logistics centres, for example are seeing movement.”
Sustainability, digitalization and construction in existing buildings were all also high-profile topics amongst speakers at this year’s event, for instance, as the sector continues to find ways to innovate and maintain momentum.
“Sustainability and ESG remain a key talking point,” says Max. “The role technology can play, in particular in streamlining processes and driving efficiencies in a market where margins can be so tight, was also high on the agenda. This was particularly the case in an ESG context, where technology can play a big role in ESG monitoring, evaluation and reporting – but also all the way through from accounting systems to property management.”
Current market conditions have also provided asset managers and asset owners with an opportunity to reflect on their positions, assess their portfolios and position themselves strongly for when conditions do improve.
Meanwhile, as far as real estate funds are concerned, there will also be a time when a fund comes to the end of its lifespan and a sale needs to take place.
“There can’t be a perpetual standstill in the real estate funds market,” adds Vincent. “Our teams across our European hubs are already seeing some movement in that sense, and we anticipate more, where there is a need to restructure as funds come to the end of their lifecycle. In a wider sense, this could also play a role in impacting valuations and pave the way for a market correction.”
The reality is, though, that the market overall is waiting for several more interest rate cuts to ease access to financing and really get the market going – and that, realistically, is not going to be until the second half of 2025.
Those asset managers and owners who put the work in now to explore areas for innovation and prepare for market movement, however, will be best placed to seize the opportunities when they do come.
