Market lull as uncertainty gives investors pause for thought

There’s a lull in the market as economic and geopolitical uncertainty is leading investors to sit on their hands, but activity will pick up again later in the year, experts agreed at Real Asset Media’s European Real Estate: Outlook & Opportunities briefing, which was held yesterday at Nuveen’s offices in London and online.

Stefan Wundrak, Head of European Research Real Estate, Nuveen

“The market has changed more in the last six months than in the last six years,” said Stefan Wundrak, head of European research real estate, Nuveen. “Things have turned around and people are waiting for markets to adjust. There’s less of an incentive to be active now, as assets are likely to be cheaper in six months’ time.”

Economic conditions have worsened, the risk of a recession is looming, inflation is biting and the cost of living has shot up, but real estate pricing has not changed yet.

“Real estate has moved from cheap to fairly priced, and one could argue that we are in an overpriced scenario now,” said Wundrak.

A correction seems inevitable, which is why many people are sitting on the sidelines and waiting for asset prices to be lower.

“Six months ago there was a real keenness to invest but that sense of urgency to deploy capital has now gone,” said David Inskip, head of UK strategy and research, CBRE Investment Management. “However, the money has not evaporated. There’s still a lot of capital out there looking for opportunities.”

The wall of money is still there and so is the willingness to invest but the wait-and-see attitude is prevalent.

“We’re in a very slow transactional phase, things have changed after a strong start to the year,” said Assem El Alami, head of international real estate finance, Berlin Hyp. “The majority of deals are still going through, but some are being pulled. However, things will pick up later in the year and we’ll see investment activity coming back.”

We are witnessing a slowdown in investment activity, which is perhaps inevitable after such a strong start to the year. Now there are less bidders than before, even for core assets, but there are still deals being done and the situation cannot be compared to the aftermath of the great financial crisis.

“After the GFC there was a complete standstill in Europe for three or four years, but I don’t see that now,” said Audrey Klein, non-executive board member, chair of ESG committee, SFO Capital Partners. “There’s a lot of pent-up demand from the pandemic. It’s true that some people have pressed the pause button, but I don’t think that will last very long.”

As investors wait for things to pick up later in the year, they should use the next few months to build relationships and plan for the future.

“There is no fear of missing out on attractive pricing or on occupier market performance at the start of a recession, but there is still a fear of missing out on building out operations,” said Wundrak. “This is a good time to strengthen business partnerships, otherwise there is a real risk of not being ready when the music starts playing again.”