Rate cuts do little to dispel concerns as ESG costs rise

The first half of 2024 was particularly unstable, according to Alex Grellier, founder and CEO of virtual data room provider Drooms.

He said that there were some positive messages and some negative messages with, “a lot of players not really knowing when to act, how to act, at what price to act. So, a lot of uncertainties I would say.”

Drooms published a report on real estate trends in February and Grellier said that there has been more activity since then but, on the negative side, this has been because of the fire sales. However, the fact that deals were completing means that there was common ground on prices.

Speaking to Real Asset Insight’s Richard Betts, Grellier said that the ECB’s small cut in interest rates may not have much impact when 2020 pricing is considered. On one hand interest rates have decreased slightly, but on the other hand massive cost increases due to ESG regulations are kicking in which may be a problem or at least a challenge for some.

Even with a rate cut there is more discussion of “distress”.

Distressed assets will be traded, Grellier said, but financing is becoming more critical. “More and more Banks are now realising that they might have to do something. This market, at least in Germany, disappeared for a while but I would definitely say it’s back”.

More people are concerned about ESG and understand that it is here to stay, it’s not like a wave that comes in and goes away again, Grellier said.

Nevertheless, property market players see more challenges than opportunities.

He said that the last European elections have shown that people are not really happy with what they see today, “but so far I don’t see any pull back or anything like that.”

“If you look at France you have assets which you cannot even put up for rent. An asset which doesn’t bring any kind of revenue will be considered a ‘stranded asset’ so there is this obligation to do things like renovation and making it ESG compliant, which has a massive impact on the costs.”

Drooms has created an ESG Department so new ESG surveys will be forthcoming in the future.