MIPIM: Returns are lower but appetite for RE just as strong

Returns will be lower this year but investors’ appetite for real estate is just as strong, delegates heard at Real Asset Media’s Global Capital Flows & Winning Cities briefing, which took place at MIPIM in Cannes.

“2021 was a record year in terms of returns in Europe and in the US as the market was in recovery mode from the pandemic”, said Simone Pozzato, Managing Director and Fund Manager, Investment Management, Hines.

“Investors keep piling into real estate because it keeps doing well. 2022 will be a year of transition and returns will return to normal”.

Normality is still good, as European markets are still seen as attractive by international investors.“There’s plenty of dry powder available to be invested in Europe”, said Pertti Vanhanen, Managing Director Europe, Cromwell Property Group.

“Equity and financing are available and there’s a strong appetite for real estate, but investors are concerned about the implications of the war in Ukraine”.

Institutional investors have to point the way, also on the social aspect of investments which is often overlooked.

“We’re helping our people in the countries bordering Ukraine, giving them one paid day off a week so they can help refugees”, said Vanhanen.

They also have to take the lead on sustainability, which is now a demand from investors as well as tenants and regulators.“ESG should be as natural as breathing and walking for real estate professionals”, said Vanhanen.

“We need to do so much more than just putting solar panels on the roof”.

Sustainability is no longer just a box-ticking exercise, but it is increasingly linked to financial performance, as it is virtually impossible to sell a non-compliant asset.

Compliance is not just the right thing but it also makes sense, said Pozzato: “Debt and insurance are cheaper if you have a sustainable strategy, operational costs are lower and then there’s the issue of liquidity and an exit strategy, so every aspect of investment is covered”.

EU regulations are ahead, so European investors are going to the US, asking for ESG certifications and forcing that market to adapt, he said.

There’s a divide in capital flows, with European investors targeting their Continent and North America, while Middle Eastern capital is pouring into high-growth countries like Egypt.“We see record levels of capital coming from the Gulf countries, with Abu Dhabi investing $400 million in Q4 2021 alone”, said Ahmed Shalaby, President & CEO, Tatweer. “Egypt offers many opportunities in different sectors, as dozens of cities are being developed all over the country. There’s also a growing awareness of sustainability and even private developers like us are adapting to the new trend and integrating all the positive aspects of place-making.