Real estate market in the transition phase
The MIPIM international real estate fair in Cannes, held on March 14-17, 2023 was an opportunity to get acquainted with the latest trends and challenges facing the commercial market. Key issues included decarbonization and ESG, investing, and tenant strategies during the economic downturn. Axi Immo experts decided to share their insights on the MIPIM fair.
The commercial real estate market is in a transition phase, and the key factors for the next few months remain issues related to investment financing as the rising cost of debt. Most of the participants and panel discussions at MIPIM pointed to an apparent cooldown in the investment market. Achieving the results of the previous three years will be very difficult.
Interestingly, the dynamics of events in the financial markets were at their peak in the days of the fair itself. The weekend preceding MIPIM, we saw news of a massive collapse in the US banking sector. On, March 16th, the European Central Bank announced an interest rate hike of another 50 basis points. In our view, these events did not echo as strongly on the mood at the fair itself as one might expect. Rising financing costs have already become the new normal for investors, and investment strategies have already reflected expectations of rate hikes. Reports from the banking sector, on the other hand, were still too fresh from assessing their implications for the commercial real estate market.As a general rule of thumb, currently, there is still a significant group of institutional investors experiencing high uncertainty, which translates into adopting a wait-and-see approach. The situation affects the extension of transaction processes. More expensive financing directly impacts capitalization rates, making reaching an agreement between sellers and buyers difficult. At the same time, cash investors are in a much better position.
We are also seeing increased activity from CEE and Scandinavian players, who are less concerned about the negative impact of Russian aggression in Ukraine and are actively seeking attractive real estate opportunities in Poland's major markets.
Occupier activity in the near term should remain high, with most companies during the economic downturn will not secure additional space. Among the trends, optimization or relocation to greener properties guaranteeing ESG strategies and lower operating costs will dominate. Zero-carbon, total decarbonization, and possibly reducing carbon emissions remain an integral topics among market players and experts. ESG experts, who are increasingly permanent employees of real estate developers and consultancies, are responsible for pointing out and verifying sustainability measures.
On the supply side, prices and availability of building materials have stabilized. Nevertheless, they remain high, which, together with the high cost of financing, directly affects the pace of delivery of new projects.
In the context of the following months, it is indicated that Poland remains an attractive location despite the economic slowdown, energy crisis, and bordering with Ukraine. Domestic assets, especially the city logistics segment, and new office building investments will remain particularly interesting for investors. Among alternative asset classes, the sector of retail parks and PRS is also indicated.