Land price adjustment likely as rise in costs filters through

The market has changed quite fundamentally over the next last six months, and more so than in the last five or six years according to Nuveen’s head of research, real estate, Stefan Wundrak.

“We have seen a massive shift in financing costs and also opportunity costs in terms of what investors can get in other asset classes,” he said.

Speaking after Real Asset Media’s recent European Real Estate: Outlook & Opportunities briefing, held at Nuveen’s headquarters in London, Wundrak pointed out that property is usually slow to adjust. He added, “I think we are expecting that financing costs are going to feed through to pricing and we’re going to see an adjustment.”

The sectors will behave differently as some are subject to tailwinds, others to headwinds. He said that on the development side, where investors have invested on developed-to-core strategies he expects an adjustment to land prices. “That’s actually the only residual value when there can be changes because, obviously, construction costs are going up and rents and yields are relatively fixed but that is a value where we’re probably going to see some shift.”

He pointed out that recessions and more turbulent periods are not great for higher risk strategies. “If you’re invested already in these it’s probably quite a challenging period ahead.”

On the other hand, he said it is a great period to start such projects. “Then they are potentially completed in a period where others have stayed away.”