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European real estate: Build foundations now for deal flows later in the year

Amsterdam
Dewi Habraken, Senior Director – Corporate Services, and John Collins, Senior Director – Fund Services, take stock of some of the key issues to emerge from an eventful 2023 so far for European real estate and reflect on the current state of the market as we head into the second half.

Perhaps unsurprisingly, both Dewi and John identified that prevailing uncertainty in global markets coupled with rising interest rates and the inflationary environment were all coming together to create an unusual ‘moment of self-reflection’ in the market.

“There’s no doubt that central bank rates are impacting decision making and the overriding expectation is that this year will be relatively quiet on the deal making front,“ said Dewi. “However, that’s not to say that there is not positivity in the space. Rates are anticipated to peak later this year and once that happens we fully expect considerable movement in the market to follow.”

In the interim, John pointed to a current period characterised by a different sort of ‘busy’:

“The challenge at the moment is that the rate environment is impacting asset prices, so understandably investors are not keen to move forward until they see asset values have reached a beneficial level. Nevertheless, investors, managers and advisers are particularly keen to put the groundwork in now, collaborate on initiatives and come together so that when the time comes for them to press the ‘go button’, they are in a strong position to do so and move quickly.”

The key will be timing, with an inflexion point anticipated to be reached later this year when asset values are perceived to have bottomed out, as Dewi explains:

“There will be competition for investment, so the work being put in now will be vital for when the moment comes to make the move. Critically, it’s across the board in the European market – all sectors and European geographies are in the same boat, so for investors it’s all about flushing out the good value deals and picking up the right investments for them. In that context, right now, whilst the deal flow is in a state of pause, represents a real opportunity to do the hard work and put everything in place to move at pace in due course.”

Meanwhile, John also highlighted the sustained rise of ESG thinking in property investment:

“ESG thinking was already being integrated into investment deals, but the current environment has given investors, managers and developers the rare opportunity to reflect on their plans. As a result, there’s a definite move in preference towards stripping properties down to integrate ESG strategies, rather than building from scratch. That will be an interesting trend to watch going forward this year.”

 

To find out more about JTC’s real estate services for institutional clients, please speak to Dewi or John directly or access our dedicated Funds and Corporate real estate pages.