What a difference a year makes… In part one and part two of this series in 2023, we shared our insights and predictions for the real estate market. Back then, the Covid-19 pandemic was behind us, but the war in Ukraine was already taking its toll on European markets. Inflation skyrocketed, supply chain issues intensified, and we all know what interest rates did.
Fast forward a year: What’s changed? And what’s next?
Join us as we take you through the 10 key insights you need to know about today’s real estate landscape.
1. Transactions
While real estate transactions in the market haven’t come to a complete standstill, we continue to see stagnation and postponements of transactions. Why is that? It’s primarily due to sellers expecting to maintain or receive higher values for their assets at a time when buyers may no longer be willing to pay the same multiples compared to a year ago. As we had foreseen, real estate transactions generally dropped or stagnated at the end of 2023 and beginning of 2024. We expect some form of repricing to happen in the next 12 months.
The construction market continues to take a hit due to lackluster demand and concerns around increasing construction costs. Following inflation slowdown, however, we should see them stabilize.
The worst might be behind us as transactions are expected to pick up in the second half of 2024, and have already started for some asset managers.
2. Liquidity
Cash is still king, mainly because banks are increasingly careful when it comes to providing financing for real assets. This means it is critical for market players to properly manage and monitor their liquidity position. What’s more, leveraged funds are experiencing cash flow constraints.
3. Financing conditions
Interest rate volatility has continued as central banks maintain rates to counter inflation. Banks are revisiting their lending conditions and increased margins may compensate certain borrowers’ increased risk profiles. Bank covenants and the ability to generate cash are also expected to be a focus for lenders.
Alternative providers of finance are always more competing with banks. This period of uncertainty has led to creative new ways of financing and refinancing. Don’t miss Navigating real estate debt funds which explores why real estate debt funds are an appealing alternative to traditional real estate funds. With tokenization and retailization as emerging trends to keep an eye out for. Some market players have also put more focus on ELTIF 2.0 to optimize retailization.
4. Investors
Higher interest rates mean return expectations are narrowing due to the external cost of funding. As such, there is likely to be a competitive advantage for equity/deep pocket investors that do not need to borrow. However, this also unleashed an opportunity to invest more in real estate debt funds rather than traditional real estate funds.