Real estate at “pivot point” according to experts

2024 is set to be a “year of two halves”, with trading conditions for global real estate improving considerably in the second six months of the year, according to leading voices at this year’s MIPIM in Cannes.

Lisette van Doorn, CEO of the Urban Land Institute (ULI) Europe affirmed that the industry was at a “pivot point” as the ULI and PwC unveiled the findings of the global edition of Emerging Trends in Real Estate. “The market is beginning to get to grips with a new era of higher interest rates,” she noted. “Overall, with greater clarity on monetary policy there is some optimism in the outlook for real estate in the next few years, with opportunities emerging especially at the intersection of real estate and infrastructure, for example where related to the energy transition, communication, and data.” However, like many others at the event, she sounded a note of caution over “ongoing uncertainty arising from geopolitical – and political – factors in many countries”.

Rate cuts

Gavin Neilan, founding partner and chief investment officer at Deutsche Finance International was largely in optimistic mood. “The topic on everyone’s mind will be central bank rate cuts and the speed at which they will begin to fall, hopefully kickstarting the transactions market after an extended period of muted activity across all markets,” he said. In terms of sectors and themes, Neilan said that his firm was focused on “how to tackle living’s sizeable supply-demand imbalances”, as well as “the challenges of the office market” and “the continued growth of alternative sectors such as data centres and energy transition”.

James Boadle of landlord and developer Oxford Properties agreed that while market challenges are easing, a “bumpy” outlook characterised by a “mixed sentiment” is on the cards. He said: “While interest rate hikes have started to tame inflation and the longer end of the rate curve has started to tail off, macro headwinds persist and it’s likely to still be a bumpy year ahead, with further repricing across the industry to come – albeit to varying extent depending on sector and European market.”

Keynote themes

Macroeconomic questions aside, environmental, social and governance (ESG) challenges and the climate transition were also urgent themes. Launching the event, keynote Sanna Marin, the former Prime Minister of Finland, led with a strong message that “without a green future, there is no future”. Appointed as Finland’s PM at just 34 years of age, which made her the globe’s youngest PM at the time, Marin went on to set the world’s most ambitious net zero targets under her watch. She urged others to do the same. “I believe everyone should meet Finland’s ambition level,” she said. “I know it’s really hard, but we all have to set targets really high, because we can’t negotiate on issues like the climate and biodiversity.” Marin also raced through other topics including artificial intelligence (AI), gender equality, populism, and war in Ukraine. “Ukraine has to win,” she said to applause from the audience in the Grand Auditorium. “It is a question of democratic values.”

In her net zero keynote, Tina Paillet, president of the UK’s Royal Institution of Chartered Surveyors (RICS), placed the estimated cost of the global transition to net zero at $13 trillion, including some $750 million a year for green cement and steel. She also emphasised the need for more attention and research into the circular economy, suggesting that “the potential of the re-use of materials” could “stimulate a whole new industry”.

Other VIP voices included the Prime Minister of Thailand, Srettha Thavisin, who has been in office since August 2023 as leader of the country’s Pheu Thai Party. A former property develop, Thavisin pushed the real estate agenda as he discussed Thailand’s potential as Asia’s fourth largest economy. The country has prioritised clean energy and he said that sustainability was “top of the agenda” in advancing its urban development. Over the next 12 months, the government intends to issue more details about its real estate investment and development opportunities.

Sector preferences

Investors expressed an interest in a range of sectors, ranging from the in-vogue beds and sheds asset classes to opportunities around the structurally challenged retail and office sectors. Annette Kröger, European chief executive of PIMCO Prime Real Estate, noted that “in terms of equity, opportunistic and distressed markets are showing opportunities, although we also anticipate core and core+ segments to become appealing to those with dry powder.” She added: “Some elements of the market have remained consistently strong, relatively speaking” citing data centres as a promising investment route. Office assets, meanwhile, were benefitting from a marked return to on-site working and a “greater desire for personal and social interaction”.

Dominic Amey, principal and managing director of capital markets at Avison Young UK, also suggested an office bounce-back could be on the cards. After a flat period in terms of sales and occupancies in 2022, Amey said that last year London experienced a “surge” in office take up, a trend which is likely to continue this year. “Companies that had perhaps extended existing leases, or served lease breaks in favour of working from home, were keen to get back to the office – many seeking best-in-class space to attract their staff back in.”

Other delegates discussed repurposing offices and retail to give them a second life. Jochen Schenk, CEO of German investment manager Real IS, said that his firm had recently converted an aging shopping centre in Berlin by replacing half the redundant retail area with offices, and turning the remaining space into a convenience centre serving local shopping needs. An estimated 32 million tonnes of CO2 had been saved in this way, by avoiding demolition and rebuilding. “We have become experts in managing this kind of green conversion,” he said.

Xavier Jongen, managing director of residential for Catella, suggested that this kind of approach would also be essential for the residential sector. Jongen noted that macroeconomic headwinds had often encouraged landlords to “kick the can down the road” in terms of making portfolios more sustainable. “What we need to work out is how to balance decarbonisation while maintaining acceptable costs for occupiers and continuing economic growth,” he said.