Institutional Real Estate Europe

November 1, 2023: Vol. 17, Number 10

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From the Current Issue


Escaping the maze: The 2023 Institutional Real Estate Europe editorial board tries to make sense of confusing times

When asked what — if anything — they wanted to gain from the 2023 meeting of the Editorial Advisory Board of Institutional Real Estate Europe, one member offered a candid and rather telling response. “I expect to remain confused by the end of this gathering,” he said. “But at a higher level.” The comment summed up the feeling among the board’s members. An undercurrent of anxiety and mild bewilderment is feeding into investor-manager meetings, research work and internal investment committee sessions


Storing long-term value: The resilience of data centres

We are in the midst of a semiconductor arms race. Manufacturers continue to release increasingly powerful processors designed to manage new types of workloads, including artificial intelligence and machine learning. This “chip” war is understandably concerning some investors. As technology advances at a rapid pace, will the data centres supporting the servers that contain these processors become obsolete? But these fears may be unwarranted. Innovation will indeed impact data centres, but these risks are both limited and manageable. In fact, the global economy’s increasing reliance on data has only made these facilities more attractive investments


A new dawn: REIT price growth in the euro zone

Since the mid-point of the year, euro zone REIT prices have grown by around 4 percent, but are still down this year by 7 percent and down 43 percent since 2021. There is growing belief that the euro zone has the most favourable near-term potential for further price growth. Factors supporting this view include a wide yield spread and larger discounts to NAV, combined with inflation that is expected to return to target quicker than other regions


Putting the right pieces together: German senior living remains attractive

There are still relatively low-risk property types that are experiencing dynamic growth. These include residences for senior citizens in countries such as Germany. Senior living is not, of course, completely immune to negative macroeconomic factors. Higher energy costs, staff shortages and rising labour costs are all issues that investors must grapple with. The great advantage of senior living properties, however, is that tenant demand is largely independent of fluctuations in the economy


Filling the gap: Expect a non-bank boon as traditional CRE lenders retrench

Stricter lending criteria coincide with $1.9 trillion (€1.79 trillion) of commercial real estate loans due to mature between 2023 and 2025, of which $983 billion (€929 billion) are bank loans. Borrowers who obtained loans when interest rates were low will face much higher financing costs, and will no doubt exercise every feasible option to extend existing loans. Some borrowers, however, will struggle to secure the needed financing. This scenario will lead to a gap in the lending market, offering non-bank lenders a chance to step in and meet the underserved loan demand


On the road to transition: Reaching a SFDR turning point

There is a clear indications of momentum pointing towards a potential shift that would mean SFDR better reflects some of the nuances associated with real estate investment. Signals from policymakers certainly sound optimistic. They offer a perceptible hope that Article 9 could become more focused on transparency first and foremost, rather than prescribing market participants’ approaches to sustainable investment. There is plenty still to do, but it does feel as if the industry may have reached a potential turning point. If achieved, this would have a significantly positive impact on the industry’s capability to meet its net-zero obligations


Great potential: Hotel properties are a long-term growth market

Although the hotel industry continues to face challenges, the market still offers great potential for property investment. Despite a shortage of skilled workers, increased labour costs, the energy crises and inflation, the sector has proved to be more resilient than other types of use


Annual cost of €8 per sqm to keep prime assets green

It will take an average annual capex figure of €8 per square metre, at a current climate-related risk premium of 19 basis points, to ensure prime assets keep in line with the current 2050 sustainability deadline set by the Paris Agreement


Little prospect of quick recovery in valuations in 2024

Recent European valuations data from MSCI for the second quarter has confirmed that capital values are still falling across all sectors, but at a slower pace than they were last winter. This has raised the question as to whether real estate has reached a turning point in this downturn. Oxford Economics, however, says a quick bounce back for values looks unlikely next year and has given five key reasons why valuations will not recover strongly in the near term in a recent white paper


German multifamily prices plummet by 17% to 2018 levels

Purchase prices for German multifamily properties have dropped an average of 17 percent, moving back to valuation levels last recorded in 2018. In its Residential investment 2023/24: An overview of residential/commercial-mix properties report, Colliers has said that it does not expect prices to fall further, although slight corrections are still possible in some residential sub-segments in Germany. As a result, the advisory firm believes price levels for both residential and residential within mixed-use properties have found a “new equilibrium”


First ‘white label’ flexible office operator starts in the UK

Two former Cushman & Wakefield executives, along with a former finance officer from luxury hospitality group Habitas, have launched what they call the “first truly white label” flexible workspace operator in the United Kingdom. Covalt, which will offers owners, landlords and investors a “start-to-finish” management service for flexible workspaces, has already signed agreements to manage 100,000 square feet (9,290 square metres) of office and amenity space.

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