EXPO REAL 2024: Key trends in the real estate sector

EXPO impressions

Will it get better? That, I think, was the question on the lips of almost every Expo visitor. A bit, yes - that's probably how most of them responded, with cautious optimism. Although the industry is far from fully recovered, we're hearing about real estate deals and successful financings, and there's a growing conviction that the worst is over and new opportunities are emerging in many areas. The strong presence of politicians is remarkable - I was able to witness the Federal Minister of Construction, Klara Geywitz, in person on the stand of the German Property Federation (ZIA), and I heard Minister Ina Scharrenbach (Minister for Regional Identity, Communities and Local Government, Building and Digitalisation of the State of North Rhine-Westphalia) in a forum. The focus here is on ESG, reducing bureaucracy and housing. This will be accompanied by changes to the German Federal Building Code, the introduction of the "E" building type and the funding of construction projects with federal and state funds.

And what do the market players have to say?

Market stabilisation and development

The property market is gradually stabilising after being severely affected by rising interest rates and economic uncertainty. Although a full recovery may not occur until 2025 or later, transaction activity is expected to pick up somewhat as inflation and interest rates normalise. Investors are increasingly focusing on logistics, infrastructure and residential.

Financing remains a major hurdle, especially as traditional bank loans are increasingly difficult to obtain due to stricter equity requirements and higher risk assessment standards. To fill this gap, loan funds from institutional investors such as pension funds and insurance companies are becoming an increasingly popular alternative. In addition, experts expect interest rates to fall again in the near future.

The German housing industry is optimistic. Housing will continue to be needed, and falling interest rates, stagnating construction costs and rising rents offer opportunities for investors. In addition, the federal government's new incentives could boost new residential construction. But there are also uncertainties. In recent years, fewer construction contracts have been awarded, fewer building applications have been submitted and less construction has taken place overall. Insolvencies in recent years have also led to bad debt losses for construction companies. Many are wondering whether construction companies will experience a similar situation to project developers, with an increase in insolvencies.

Unexpectedly, retail, and shopping centres in particular, have once again become a valuable asset class internationally. This represents a turnaround from previous years, when retail was largely written off. Large transactions, particularly in Italy, have contributed to renewed interest in the sector, which is now seen as an asset class for selective opportunities.

The office sector is sending mixed signals. While hybrid working models and high vacancy rates continue to weigh on the market, prime office space in core cities is experiencing rising rents. Investors are cautiously optimistic and some see opportunities for early re-entry, particularly as companies adapt to new working models.

The hotel industry has been hit hard by the coronavirus pandemic. These are probably the current winners. The number of transactions and demand for hotels has continued to rise, both nationally and internationally.

ESG and sustainability

Environmental, social, and governance (ESG) concerns, particularly the need to address embedded carbon in construction, were prominent at Expo Real 2024. Industry leaders acknowledged that while progress has been made in reducing operational emissions, the larger issue is tackling the carbon footprint from building materials and construction processes. Investors and developers are increasingly recognizing the importance of integrating sustainability into real estate strategies to prevent further asset depreciation. The trade fair was therefore characterised by many innovative building ideas, AI-based tools for reporting requirements and a great deal of interest in regenerative ideas. ‘Because something has to change’ was one of the advertising slogans at the entrance to the fair. My impression is that all those attending the fair would subscribe to this.

Looking ahead

Expo Real 2024 has not led to a wave of major deals, but it has confirmed the assumption that the market cannot get much worse. Investors are seeing opportunities again, particularly in the residential, hotels, infrastructure and logistics sectors. Some are still grappling with, or in the process of making, difficult decisions about the valuation of their assets, and that too is part of the truth. But the industry is cautiously starting to pick up speed again, even if a full recovery will take some time.

Or, to remain optimistic: last year's motto ‘Survive until 2025’ was probably not wrong, but 2025 is already next year.

Authored by Sabine Reimann.