A clean sweep: These opportunities arise from the crisis in the real estate industry

What is the current situation on the real estate market?

Rental demand in residential real estate remains on a high level; the demand for logistics space is also still high. The hotel market sends at least no alarming signals. Purchase price factors have decreased on all sides and many property owners have already depreciated and refinanced their portfolios. This offers some opportunities. 

The development sector, on the other hand, remains difficult and a number of insolvencies have shaken up the market considerably. The retail sector is also struggling with insolvencies, mainly on the tenant side. The existing problems seem to be not only due to the crisis, but also of a structural nature, similar to the office space segment. Speaking of offices: How do we deal with the overca-pacity?

Nevertheless, insolvencies offer opportunities, devaluations make room for new prices, and struc-tural change can create something new. And there are still transactions, albeit in a different envi-ronment than in 2022. The scope and volume are smaller, the times required for completion are longer. Price negotiations take more time, investors are more cautious, due diligence processes are more intensive, and purchase agreement negotiations are tougher. And the buyers’ new market power is already noticeable in the drafting of contracts: One or two clauses are more buyer-friendly than they have been since 2008.

Market participants: Who buys real estate?

The composition of market participants is also changing. Family offices have a different focus and perceive crises differently. At the same time, new opportunities are arising for financially sound, long-term investors. Private equity, however, is looking for higher margins and institutional inves-tors are waiting.

On the financing side, there is still no breakthrough in sight: Banks are still acting cautiously be-cause the scars of the banking crisis are still fresh. Alternative financiers see their opportunity and are charging high risk premiums. Non-performing loan packages are not yet on the market, even though the rumor mill is in full swing.

How is the real estate market going to develop?

Like any other consulting firm, we cannot predict the future; however, some scenarios in the real estate sector are very likely to occur: Few impetuses are to be expected from the legislator, and these should mainly relate to the residential sector, i.e., only to a partial segment. Maybe there will be some tax incentives or more streamlined building requirements. At least real estate transfer tax is subject to discussions. 

The capital market is still looking for a stable interest level, which certainly depends on external factors. However, if current trends should continue, there might be no more than two or three fur-ther interest rate increases. The time for refinancing will come. 

Rental demand for housing and logistics should remain high and – in the case of housing – possi-bly even increase locally. The issues of “residential rents” and “affordable housing” will therefore continue to accompany us for the foreseeable future.

Individual segments in the retail sector remain under pressure, leading to further price reductions. Among project developers, the strong players are going to assert themselves and portfolios will provide a new mix. The number of transactions is going to increase again. Every crisis comes to an end.

Come and discuss with us from October 4 to 6, 2023 at EXPO REAL, booth C2.230. We look for-ward to seeing you.