The likelihood of a rebound in deal activity in the final quarter of 2023 is quite small, Tom Leahy, head of EMEA real estate research at MSCI, said during a panel discussion on global capital flows at EXPO Real.
“The market is still pretty slow. The trajectory for interest rates is flattening out a bit, but so far there has been no real pickup in deal flow. Price discovery is still an issue, although we are starting to see it happen.”
Any recovery is most likely to happen first in the markets that have corrected the fastest, he added. “In Europe, the UK, France, Germany, the Netherlands, Ireland and the Nordics have re-priced the fastest so it is reasonable to assume that those furthest into the correction will recover first.”
In terms of sectors, industrial/logistics is coming back fastest following a particularly sharp price correction after the rapid rise in interest rates last year, Leahy said. “Prices were very keen when the market peaked,” he explained. Residential will also return in due course, he added. “Residential markets haven’t fully adjusted yet, but the structural trends driving capital into beds and sheds will remain.”
Tailwinds are propelling almost every segment of the residential space, agreed Stephen Miles, head of strategic partnerships for Europe at Schroders Capital. “Geographically, we still see a lot of demand for the deep and transparent markets and I don’t see that abating dramatically.”
The key questions facing investors are where to invest, when and in what sectors, he added. The office sector, for example, is ripe for a correction, especially now that corporates are rethinking their footprint due to the growing working from home trend and moves to consolidate their premises. “Office has traditionally been the biggest asset class and many investors who have long been invested in this segment are realising that their weighting is quite high at a time that the music has stopped.”