In Part 1, we took you through our predictions for the 2023 real estate market. Now it’s time to look at what these uncertain times mean for specific real estate assets.
- The hospitality business has been severely hit by travel restrictions over the last couple of years with many hotel development projects on hold. That said, with Covid-19 restrictions lifted in 2022, luxury travel saw an upturn. This should continue to be the case in 2023, with the exception of possible adverse trends given the increasing cost of travel.
- Investors holding retail assets have also felt the effects, as the pandemic has fueled the continuous boom of online shopping. Even in Luxembourg City, you will notice empty retail spaces in prime locations such as Grand-Rue.
- Investors with holdings in office buildings have been affected by the growing trend of working from home, resulting in less office space being utilized. Some office buildings, therefore, will now be converted into residential properties.
- There has been a significant boom in the logistics arena thanks to the continued impact of e-commerce. We don’t expect this to slow down in the coming year. We have, however, noticed a slight decline in valuations (even in logistic type assets) due to yield variations and valuation uncertainty brought about by rising inflation and interest rates.
- Operational real estate is gaining ground…But what exactly is it? This category includes a vast array of properties including life science facilities, data centers and forestry investments. These types of real estate are trending as investors aim to diversify their portfolios and help the environment and society at the same time. At a recent INREV conference in Marseille, we saw it for ourselves with market players investing in assets from care homes to agricultural land, and even forests! Of course, the question on everyone’s lips throughout the conference was: if you’ve got EUR 1 billion to invest in forests, where on earth do you invest it? In terms of impact investing, helping the planet, and meeting sustainable development goals, investing in operational real estate appears to be a solid future-proofed business plan.
- Residential real estate should continue to be a resilient asset. Given the shift towards remote working, we have seen a surge of people relocating from city and town centers to suburbs and rural areas, allowing them to buy bigger properties with enough space for a home office.
- Real estate debt funds focusing on numerous strategies (e.g. senior, mezzanine and distressed loans) are on the rise, and we expect to see a big appetite to launch investment funds focusing on this asset class. Investments funds are crucial as banks alone will not be able to finance the economy.
Check out our debt fund survey for more insight.
The KPMG Real Estate Team has developed a multi-disciplinary approach where we combine our expertise and leverage our global real estate network. Our goal? To help market players navigate today’s real estate market landscape. Reach out to learn more about how we can help you.
This article was written in collaboration with Bobbi Jean Breboneria.
