The real estate market remains suspended from interest rate changes. And unsurprisingly, Christine Lagarde has dashed the few hopes of a pause in inflation by increasing its key rates by 25 basis points, bringing them to a level not reached in 22 years! And the president of the European Central Bank (BCE) to warn that the road is not over. The road is straight, but the slope is steep.
All indicators point to a gap year for investors. The latest barometer MSCI/BPCE Real estate solutions reveals that a majority of them plan to reduce their allocation to real estate in 2023 in favor of stocks and bonds. The tightening of financing conditions — coupled with the sudden increase in costs — is cutting the wings of actors boosted by leverage. The price gap between the expectations of sellers and the intentions of buyers contributes to freezing a market waiting for a readjustment of values... Which await the completion of transactions.
Invited last week to a market point in Colliers, Nathalie Palladitcheff, the president ofIvanhoe Cambridge, summed up investor sentiment in one sentence: “I would rather buy a bit too late than a bit too soon.” According to projections, this will result in an investment volume of around €17 billion this year. The rebound, or the return to normal, will take place once the interest rate trajectory has stabilized. As early as the last quarter of 2023 for the most optimistic, during 2024 for the consensus.
“But most of all, I want to buy something other than the office that has fed me so well over the past two decades.” With the notable exception of Paris, most of the value creation was achieved through an easing of interest rates, recalled Ludovic Delaisse, CEO of Colliers France. With the window for free money now closed, the market will switch to a qualitative rather than quantitative logic. Also helped by companies that are reducing their square meters needs by 20 to 30% under the impetus of teleworking and flex office, and especially the (bitter) observation of an effective occupancy rate of buildings that is ridiculous compared to the budget devoted. A new trend in the tertiary market that will recalibrate demand placed around 1.7 million m2 in 2023. And there, no rebound to expect in the coming years.
In this new context, the oversizing of the Paris region's tertiary sector is a great challenge for investors who need to significantly improve the quality of their assets to be in line with user demand. At the same time, it is a land asset of the future at a time when the climate emergency calls for reconversion rather than construction.