Dry powder fuelling demand but pricing limits deals: PwC

Although banks are currently more reticent to finance property, investors still have sufficient dry powder from existing arrangements to make deals possible according to Thomas Veith, Partner, Global Real Estate Leader, PwC.

“The dry powder, the interest and the allocation to real estate is still there,” Veith told Real Asset Insight’s Richard Betts during an interview at PwC’s Frankfurt offices.

However, price can be the sticking point and Veith said that while valuations are down by about 10%, the discounts when deals occur can range from 20-30% and sometimes as much as 50%.

One factor that is providing some stability in the market and on rents is the lack of new stock coming to the market. For example in the office market the working-from-home debate continues but there is no significant increase in vacancy rates, Veith said.

Similarly, the residential markets are assisted by the continuing trend toward urbanisation while in the retail sector the return to physical shopping is adding to momentum after retail’s years in the wilderness.

ESG continues to be a challenge but PwC is helping with the increased demand for data that the ESG transformation demands through its collaboration with Builtworld to produce the Tech for Impact Map which identifies the top 100 tech start-ups globally that are addressing the needs of ESG.

Although those in the early stages of their development are struggling to get financial backing at present, those that are further down the line are producing noticeable benefits, Veith said.

“Of course, the last few years were focused on energy efficiency, CO2 reduction. Now we’re focusing more on embodied carbon, circularity and biodiversity,” he said. “These are the topics where data are needed and we need these innovators.”

Veith added that although it is currently a difficult time for some early stage start-ups to obtain financing, most “will have a bright future”.