Value adjustments, refinancing pressure and changing user needs are currently encountering an oversupply of space that is no longer up to date. But those who invest selectively now could benefit from the market shakeout. Tobias Moroni spoke to Dr. Oliver Voß, Managing Director at Institutional Investment Consulting Partners, about opportunities, timing and the role of net operating income.
Tobias Moroni: Oliver, the European real estate markets – are we really at the beginning of a new cycle again?
Dr. Oliver Voß: Yes, since about 2024. This is shown by both the investment volumes and the development of total returns.
Tobias Moroni: Does this also mean that investors now have good opportunities for current income and a recovery in value?
Dr. Oliver Voß: In principle, yes. However, if you want to leverage this potential, you have to understand the new value drivers in detail.
Tobias Moroni: In the last cycle, yield compression was the central theme.
Dr. Oliver Voß: Absolute. According to an evaluation by PGIM, around 40% of the average total returns in Europe at the individual property level were attributable to the yield effect. In addition, there was the decline in interest rates, which brought additional returns via the borrowed capital lever.
Tobias Moroni: And this time? Do yield effects hardly play a role anymore?
Dr. Oliver Voß: Correct. The risk premium of real estate compared to German government bonds is significantly lower today than it was in the 2010s. In addition, long-term interest rates are not expected to fall sharply: inflation is stable at 2%, while rising government debt tends to argue for permanently higher capital market interest rates.
Tobias Moroni: So what will drive returns in the future?
Dr. Oliver Voß: Various forecasts indicate that net operating income (NOI) will be the decisive factor in the new cycle. Rental growth, cost optimization and active asset management will determine performance.
Tobias Moroni: What does this mean for the industry as a whole?
Dr. Oliver Voß: Unlike in the last cycle, the recovery will not be even. Structural trends such as changing demand preferences, higher energy costs and stricter decarbonisation requirements mean that parts of the portfolio could come under permanent pressure.
Tobias Moroni: Your conclusion?
Dr. Oliver Voß: If you want to be successful, you now need consistent asset selection and active management. Investors who continue to hope for passive value drivers are likely to be disappointed in the new real estate cycle.
