Veil of uncertainty blurs a rosy outlook

A bolt from the blue

I'll be honest: despite that crystal ball, the price correction on the commercial real estate market took me by surprise too. But I’m less surprised that the ECB took action. After all, interest rate hikes were inevitable in the long run, it’s just that they’re now happening very fast. Ultimately, we are now moving toward a healthier situation in which borrowing money actually costs money. Everyone has to get used to that, including the real estate market. However, this tremendously rapid shift toward more normal interest rates is painful, and every investor is wondering how to deal with this. The answer is: with realism.

Phases of grief

I could see investors entering a sort of mourning process in the second half of 2022. Grieving starts with denial. Denial about the depreciation of their properties. They were frantically clinging onto something that was already long gone. I can now see everyone moving slowly but surely toward acceptance, the final stage of the grieving process. A new era has arrived, with more normal interest rates.

It's up to me to encourage that process by being transparent about the value and price trends I’m noticing. After all, as long as the market either can’t or won’t see, nothing will happen and everything will come to a halt. Only when we provide incontrovertible evidence that properties are worth less, will we be able to get things going again. And yes, it hurts. But it is absolutely necessary.

Looking ahead

Compared to last year, I think 2023 will look a little like a pendulum. The first few months will be quiet because many investors are still in that acceptance phase. I expect the market to gradually bear the price decline more broadly, enabling vitality to return in the second half of 2023. With the downward trend in inflation and the clarification of the ECB's expected interest rate policy, people will start to find opportunities once more. My main hope and wish is that investors will have the courage to look beyond their current horizons.

Hopeful horizons

If you look at current circumstances, I admit that things don’t look all that favourable right now, what with recession, high prices and geopolitical turmoil. But if you zoom in on the fundamentals of the real estate market, the outlook is fantastic, particularly in the long term. The risk of future interest rate increases has now been factored in. Interest rates have normalised so quickly that we may even expect a slight decline over time, once the ECB scales back its policy. There are also favourable vacancy rates, which means rental growth. For the first time in a long time, the real estate market is actually becoming interesting again, particularly for new entrants.

It's also nice to have a positive view of the market, isn’t it? The shadow of price cuts, evaporating value and recession is still hanging over us, but I want to step out from beneath that shadow. I want to take clients and show them what’s beyond the horizon, and have them wonder where we will be in three years, or five. For example, there’s the scarcity we are now seeing in the residential and logistics occupier markets, which require action in the short term. And there is also the much-needed shift towards sustainability with respect to the 2030 and 2050 climate goals. Purchases and investments are being unnecessarily delayed due to crippling uncertainty. Now is the time to take action and forge ahead. In any case, the view through my crystal ball has a distinctly rosy hue to it.