Drooms survey: focus still on innovation in European RE
European Real Estate professionals are increasing their innovation budgets and anticipate business growth despite high interest rates and growing inflation in 2023, according to a survey of hundreds of experts conducted by Drooms, the provider of digital platforms.
According to the research, over 37% of real estate companies in Europe expect revenues to increase this year, while 37.5% expect stagnation and 25% are resigned to their revenues declining.
“Real estate activity dropped off towards the end of 2022 as the impact of rising interest rates in the US and Europe knocked sentiment,” said Alexandre Grellier, CEO and co-founder, Drooms. “The first half of 2023 will see real estate dealmakers focus predominantly on NPLs, off-market deals and restructuring opportunities. Distressed deals are also expected to increase as the pressure builds on real estate balance sheets.”
There is likely to be an increased focus on smaller, single asset deals, he said: “Smart investors will be monitoring the market closely and making sure they are ready to transact as soon as market conditions improve.”
Interest rates the main worry
High interest rates and the threat of tenant and buyer defaults cloud expectations of the year ahead. Other concerns mentioned by respondents are inflation, high construction costs and the shortage of skilled revenue.
ESG is not seen as a revenue driver, with only 1.75% of real estate professional expecting climate protection regulation to have an impact on revenue. Only 32% of respondents said they are fully prepared for the implementation of ESG measures in order to comply with future regulations, while 38% are still at the very beginning of the journey towards ESG-compliance.
“It is interesting that very few of our survey participants expect the topic of climate regulation to have a significant impact on revenue, especially as ESG will continue to be one of the biggest topics of 2023,” said Grellier.
Despite the economic challenges, nearly 79% of respondents say they want to increase their innovation budgets in 2023, with only 21% planning to spend less.
“Digitalisation can make a significant contribution to ESG compliance,” Grellier said. “When it comes to managing and searching documentation for ESG regulation, there is still an incredible amount of room for improvement, so improving your digitalisation budget is important for future-proofing your organisation”.
Resi top of the list
When looking at the outlook for sectors, 24% of respondents said they see the biggest opportunities in residential investments this year, followed by logistics, healthcare, retail and industrial real estate.
Real estate professionals seem to be most skeptical about the hotel sector, with only 8.3% mentioning it as the best opportunity in 2023.
“Defensive investment strategies seem to be on the rise again,” said Grellier, “Residential is a relatively risk-proof asset class. Logistics is very strongly supported by an occupier market that has been propelled by e-commerce demand and is therefore a safe investment.”
Investors are also exploring the healthcare market because of demographic change, while retail is taking a hit due to the shift to online shopping and the squeeze on consumer spending in the face of rising inflation.
“Investors are continuing to lose faith in the office as the market deals with the ongoing fallout from lockdowns and the growth in home working,” Grellier said. “The office space also has challenges facing lower quality assets that do not meet investor and occupier environmental requirements.”