Real estate assets are at risk of a downward correction in 2023
According to Bayes Business School Real Estate Research Center experts:
“Real estate professionals face the biggest challenge of their careers. For the first time in more than a decade, the European property market has reached a tipping point, and many are struggling to predict when the bottom will finally be reached.
This slowdown would be a brutal learning curve for many professionals in the sector who will face the curve falling for the first time in their careers. They will have to quickly learn how to manage their investments in times of uncertainty,” emphasizes Bayes Business School researcher Nicole Lux.
Asset classes are at risk of a post-Covid value correction.
“I fear false optimism in the face of recent economic challenges, as shocks typically work over a multi-year time frame.
Real estate market activity is strongly linked to economic cycles, but with a time lag compared to other asset classes.
Most real estate debt has maturities of three to five years, which naturally delays the impact of economic shocks and geopolitical events – such as we have seen with Covid-19 and the war in Ukraine.
Certain asset classes, such as logistics, have advanced throughout the pandemic,” emphasizes Nicole Lux.
“The impact will be felt differently depending on the sector. Real estate assets are now at risk of seeing a downward correction in value. But not all property types will be affected equally.”says Alex Skouralis, a researcher at the Bayes School of Business.
A recent Bayes Business School report on commercial real estate loans shows that while rising interest rates worry borrowers, staggered loan maturities mean interest rates will affect only 15-20% of borrowers or lenders each year.
On the other hand, real estate values may continue to decline while the rest of the economy grows again.
The result of the adjustment in the valuation of REITs
After a significant adjustment in the valuation of REITs in 2022, all eyes will be on their use and implementation in the coming year.
“We are particularly interested to see how the valuation correction continues in 2023.”– Director of Real Estate Research Center Alex Moss said.
“Specifically, our research will focus on determining implicit pricing of listed real estate versus direct real estate, quantifying the impact of structural and cyclical changes in various industries, the use and application of REITs for multi-asset settlement funds, and successful valuation approaches. investment and sustainability strategies in the listed real estate market.
Market corrections are expected in real estate investments over the next 12 months. “
Nicole Lux says that despite the current downturn, there are still opportunities to create value in real estate asset management, and she points out three key areas.
According to him, these three areas will be the main drivers of value to secure the future of real estate investment between 2023 and 2030:
For investments to be compliant with the Paris Agreement, buildings must reduce their carbon footprint.
These are emissions that are “trapped” in the structure of buildings – such as the steel, windows or insulation produced to construct, maintain and repair the building – as well as carbon that acts as emissions from energy used to run heating and appliances. and other end uses.
The built environment is responsible for around 40% of global carbon emissions, but all new buildings must operate at net zero carbon by 2030, and new and existing buildings at net zero carbon by 2050.
Environmental, social and governance (ESG) considerations
Green real estate, flexibility and impact investing are also increasingly important to investors. Residents have become more autonomous and more demanding because they want good places to live and work.
To attract more buyers or tenants, developers and landlords must offer additional benefits or provide thoughtful amenities. Opportunities include office buildings with smart technology, convenient amenities and access to electric vehicle (EV) charging stations, e-bikes or e-commerce outlets.
Forward-looking developers, investors and other stakeholders understand the importance of sustainability. This is not only about maximizing energy efficiency, but also choosing environmentally friendly materials.
Digitization and technology
Increasing efficiency and reducing operating costs through the use of digital solutions will also be a major game changer in the coming year and beyond.
Proptech allows investors to remotely manage real estate investments through startups that offer asset construction and management using just a smartphone.
It is easier to make a positive return in a growing or stable market, and 2023 will be difficult for investors, but there will be significant opportunities for those who are savvy enough to make excellent returns, concludes Nicole.Lux.