Focus on long-term value in the current “hangover phase”

In these uncertain times investors must look beyond immediate difficulties and focus on the long-term, experts agreed at Real Asset Media´s Global Real Estate Trends briefing, which took place last week at EXPO REAL in Munich.

Eri Mitsostergiou, World Research Director, Savills

“Now we need to pay attention to interest rates, the cost of capital and asset deflation instead of focusing on fundamentals”, said Mark Richardson, CEO, Income Analytics. “We need to watch what the central banks and the politicians are doing, rather than sectors and countries, because they will continue to have a real impact on pricing”.

After the financially-engineered recovery post-GFC, interest rates were low and there was a lot of free money flowing around.”It was a big party, but now we are in the hangover phase”, Richardson said.

Looking ahead, investors should keep fundamentals in mind and focus on the big trends that are likely to influence the value of assets over the long term.

One big trend is ESG and in particular climate change. “You need to watch the central banks, but also nature and society”, said Eri Mitsostergiou, World Research Director, Savills. “We´ve had a lot of unpleasant surprises this year, from floods to fires, and the climate is going to have a real impact on real estate”.

The impact will be on multiple fronts, from construction costs to the value of assets and from the choice of location to investor sentiment.

“Climate risk is also leading to insurance becoming a real issue for developers and landlords, along with the increased complexity of regulations”, said Georg Gutfleisch, Attorney-at-Law,CMS.

ESG used to be mainly about the Environmental side of things, but now social impact and good governance are slowly but surely coming to the fore, as transparency is more valued.

The current uncertainty in the market should focus minds on the important things, said Chris Nichols, Head of Strategic Real Estate, Intermediate Capital Group: “Invest in assets that will stay relevant when we come out of the mire, look at the micromarkets, concentrate on good locations and assets like last mile logistics that will continue to be in demand and will benefit from rental growth”.