From 7 to 9 October, EY Luxembourg joined Expo Real in Munich, a prestigious event attended by more than 40,000 international professionals, making it one of the most significant gatherings for real estate. A cross-functional team of EY Partners from Assurance, Tax, and Strategy and Transactions were present to engage with European and global real estate fund managers and institutional investors.
“Market participants are showing moderate optimism, though investor caution remains as fundraising momentum slows.” says Marcello Belfiore, EY Luxembourg Real Estate Partner.
The team returned with plenty of interesting and stimulating conversation, and a clear view of the top market dynamics observed by the industry.
Gap in expectations between buyers and sellers persists
Industry peers conveyed a sense of moderate optimism compared to 2023, driven by an increase in global real estate transactions, which reached $35.7bn[1] in Q2 2024. Despite this positive momentum, investor caution persists, as fundraising in the first half of 2024 dropped to $59bn[2] – its lowest level since 2012. A key challenge for many European markets is still the gap between buyer and seller expectations. Buyers, holding large amounts of undeployed capital, are eager to invest but unwilling to meet the prices sellers are still demanding. This disconnect, particularly outside the UK where prices seem to have hit bottom, could lead to distress over the next 12 months.
Social and affordable housing opportunities become increasingly attractive
In contrast, real estate debt funds have experienced strong growth, with quarter-on-quarter fundraising rising significantly in Q2 2024. Interest rate cuts are expected to further stimulate deal-making by reducing borrowing costs, improving credit availability, and increasing asset valuations. However, this shift may gradually reduce the dominance of mortgage debt funds. Opportunities in the housing sector are becoming increasingly attractive, especially in social and affordable housing, which promises long-term, stable income streams. Such investments not only address the ongoing housing crisis but also contribute to lowering carbon emissions and enhancing affordability, with models like rent-to-own.
Emerging technologies improve the industry, but data challenges remain
Artificial intelligence is slowly revolutionizing the real estate industry by streamlining workflows, improving portfolio management, and driving data-informed decision-making. Its influence spans the entire asset life cycle, optimizing design, construction, and operations while reducing costs and environmental impact. However, data management, especially at the fund compliance level, remains a significant challenge, underscoring the increasing demand for machine-readable and collaboration-friendly solutions. Meanwhile, service provider consolidation is gaining momentum, as firms prioritize outsourcing to a few trusted partners.
Overall, the sentiment at Expo Real 2024 is significantly more positive than last year, with growing optimism across the real estate sector. Despite challenges, increasing transaction volumes are encouraging. Another key observation is the widening pricing gap between green and brown projects, with sustainable assets commanding higher premiums. The The sector is optimistic about the future, as sustainability and innovation continue to drive the market forward.
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[2] Fundraising Report H1 2024, PERE