The halls of Messe Munchen welcomed almost 40,000 real estate professionals last week to Expo Real 2022. Almost as buzzing as it used to be before the pandemic!
More diverse, colorful, engaging, green and digital than ever before.
The biggest European real estate trade fair came at a perfect time to reunite with old friends to get a breather from it all, when one crisis followed another in Europe that called for stagnation in the sector. The pandemic, war in Ukraine, skyrocketing interest rates, financial elusiveness and inflation... Have we missed anything?
One could feel the dilemmas hanging in the air from the morning rush between halls until the evening drinks: When will we solve the affordable housing crisis? Leaving the should and must behind, how to execute ESG steps? Where to invest, what to buy, and what to sell? Among so many, which technology solution to choose, and why? Will the office occupancy ever reblossom? How to attract tenants back to offices, and who are they, really?
On the flipside, everything's not that gloomy. We've observed that environmental challenges bring collective action as ESG is climbing to the list of top priorities of real estate big names, the residential market remains exceptionally successful with occupancy regardless of rising rents and energy costs, technology becomes an inevitable part of the success plans of big portfolio companies, and more…
In this article, we will spotlight both sides of the coin, and bring the key takeaways from EXPO Real 2022.
Residential: Residential market is booming with opportunities scattered in flexible and shared asset types as leading properties; while new developments will need to be postponed due to the economic downturn in the market regardless of the affordable housing demands.
Office: With energy costs soaring up and work-from-home becoming a band-aid to it, office owners need to bring community, amenities, and meaningful reasons that make tenants come back to the office.
Sustainability: Sustainability is climbing to the top agenda of real estate. Great practices are in the making, yet not equally adapted by all real estate companies.
Technology: To make digital transformation more easily adopted by real estate companies, PropTech companies should join forces, integrate their solutions and reduce fragmentation.
Read on for more details!
1. Residential: High Occupancy, Higher Rents… Opportunities?
The takeaway: Residential market is booming with opportunities scattered in flexible and shared asset types as leading properties; while new developments will need to be postponed due to the economic downturn in the market regardless of the affordable housing demands.
Developers and investors lean into residential “ ...as it brings lucrative opportunities, stability and unmatched levels of occupancy compared to office or retail in the uncertain times of 2022,” highlighted Bonard's presentation at Real Asset Media's Student Housing, Micro and Co-Living panel discussion.
We find out that the rented residential models such as student housing, build to rent, senior housing, micro living, coliving are flourishing due to risk diversification, increased urbanization, mobility, number of single-person households and the come-back of community valuation after the pandemic.
30% of Europeans rent their houses today and the number constantly increases; so does the average rent. Not only in big cities, but in secondary and smaller cities across the continent as well! The rent increase is up to an approximate of 20% across Europe and the younger generation is affected by this. The increased demand for rental living is thus most notably caused by unaffordability.
Experts urge developers to build more student beds in continental Europe, especially in Poland, Germany, France, the Czech Republic and the Baltics. These are the locations where the competition in PBSA landscape is lower, the occupancy rate goes up to 98% and rents are rising the fastest, so demand is a no-brainer.
'“The lack of new development is exacerbating the supply gap in student housing as demand keeps growing. We have students living in tents because they cannot get a room, as the market in Denmark is so undersupplied,” said Anne Sophie Vett Raaschou from NREP.
“There is still a huge imbalance in all European countries, due to continuing migration to big cities. Living costs are increasing, so there is a strong shift to smaller size apartments. Younger people want to keep their links with their peers and their communities after graduation, which is driving micro-living in big cities as well. But these properties still come with high costs,'' remarked Rainer Nonnengasser from International Campus.
The main message from the majority of conversations is that regardless of the need and demand for more affordable houses, we won't see much action in 2022 on a continental scale due to the political and economic struggles of Europe today. Depending on how cold and dark the winter will be in Europe, experts hope that new residential developments will pick up in 2023 again with a stronger focus on flexible housing models.
“Rising costs will not detract from the desirability of residential investments in the long run. The underlying fundamentals of the residential market are strong and will remain strong,” said Mark Kuijpers from Greystar at the European Residential Investments panel.
2. Office: Will They Ever Come Back?
The takeaway: With energy costs soaring up and work-from-home becoming a bandaid to it, office owners need to bring community, amenities, and meaningful reasons that make tenants come back to the office.
Office landscape had to adapt to flexibility in the last couple of years. During and after the pandemic, we observe that office leases have been stagnating. While some employers stress that employees' presence at the office is crucial for team dynamics and integrating new members, Clare Thomas, from CMS underlined, “The performance of cities is declining for the first time since the financial crisis. Working from home was very convenient for many, so now cities have to work a little bit harder to attract people back,” at the Investing in Cities Outlook & Opportunities panel.
The conversations tell us that today's employees need something more than the work itself to make them come back to the offices. It comes down to experience and social impact, somewhere where they're proud to work that demonstrates their values: of modernity and sustainability, flexibility of the space according to the demands and needs of all generations, a nurturing environment and community, amenities and services surrounding the workplace and cosy interior design – such as timber offices or workplaces built in mixed-use properties.
3. Sustainability: The Overarching Agenda of Real Estate
The takeaway: Sustainability is climbing to the top agenda of real estate. Great practices are in the making, yet not equally adapted by all real estate companies.
The industry acknowledges that fast action is needed to become net-zero, for three main reasons: regulatory compliance, protecting the value of assets, and saving money from energy spendings.
Many companies aim at achieving net-zero goals by the latest 2050s, beginning with tracking the data on energy spendings, seeing where improvements can be made, and introducing more sustainable alternatives to their existing systems. Even though not all companies are there yet, some big names are paving the way and becoming an inspiration to many.
NREP is a great example of one of those with a net-zero target till 2028. They created the world’s first 100% recycled concrete building, and their current agenda is to develop the world’s first large-scale real estate project to align with all of the UN's 17 Sustainable Development Goals. In a way to see the good in the bad and introduce an example, their Anne Sophie Vett Raaschou underlined, “We hope that the current energy crisis becomes a catalyst for more environmental awareness in the sector and reaching net-zero goals faster. The most sustainable way to live is to share buildings and live together. Shared living models such as student housing are great asset classes to test sustainability practices,”.
Allianz Real Estate is another pioneer in sustainability as they target a 25% reduction in global carbon emissions by 2025. Their mainBuilding asset in Frankfurt, a 37,000 sqm office complex has been awarded the highest ‘gold’ rating by the German Sustainable Building Counci in 2020. The asset is one of the first buildings in Germany to achieve this new certification.
Their three-step portfolio decarbonization starts with collecting and assessing data on the energy performance of each building to see if it fits CRREM criteria, continues with having a sustainability plan and goals for each asset on a yearly basis to find the right environmental strategy, and ends with getting tenants on board with their practices, sharing knowledge and alignment.
While seeing actionable steps and key results will take a couple more years from the wide majority of the sector, it is a relief to see the steps in the making!
4. PropTech for Sustainability and Customer Satisfaction
The takeaway: To make digital transformation more easily adapted by real estate companies, PropTech companies should join forces, integrate their solutions and reduce fragmentation.
On the technology side, we see that real estate operators and landlords are easing into the landscape.
One trendy use case of technology for real estate is tracking and assessing energy consumption data. “We observe a shift from talking about data to actually using it. People now understand the importance of data and see its value, especially in improving sustainability practices,” said Martin Betts from NTrust.
Another one is increasing operational efficiency and customer satisfaction. We observe that landlords are talking about customer experience even when their buildings are in the construction phase. They are looking into added values such as amenities, services and digital enablers that they can introduce to their buildings before their tenants move in. Here, they get help from PropTech as well.
'“If you wish to understand tenant needs and address them, and take a step further than your competitors, bringing in technology is inevitable. This even helps with building a strong brand that is focused on the end user, which will guarantee success,” underlined Lukas Balik from Spaceflow.
At the PropTech, Data and Innovation panel, both Balik and Betts point out the fact that the PropTech solutions chain is very fragmented and companies build singular solutions that serve only one need, rather than offering a one-stop-shop. This results in confusion in real estate companies to choose the most suitable solution to their multiple needs.
Their message is: PropTech companies should be able to integrate their solutions into one another and cooperate in driving easy digital adaptation in real estate. If not, we will always face the rightful unwillingness of real estate companies to do anything digital.