Higher rates, inflation and construction costs weigh on new developments
Flagging sentiment: delegates at Mipim (pictured) were on the lookout for new opportunities, but property developers remain in wait-and-see mode because of the high cost of capital. Image via Getty
The pipeline of new real estate projects is drying up in many markets as institutional investors reallocate their capital to other asset classes and developers manage higher construction and refinancing costs.
Investors and advisers speaking to fDi Intelligence at Mipim 2023, held from March 14–17 in Cannes, France, say there has been a significant deterioration in the real estate investment market due to higher interest rates and inflation. Some believe there is risk of large “fire sales” — where real estate assets are sold at a large discount by distressed owners — and that valuations in major asset classes such as offices will continue to fall.
“Everyone is sitting on [their] hands and waiting for the world to become better again. There’s no longer investment activity and leasing activity dried up considerably,” says Marco Kramer, the head of research and investment strategy at Real IS, a Germany-based property fund manager with investments across 11 countries and €12bn of assets under management.