Property titans seek clues in Cannes for a turnaround in real estate market

MIPIM property conference unfolds against backdrop of falling commercial real estate prices and developers wondering what to do with offices emptied out by the pandemic; some investors believe turnaround is near if central banks begin cutting rates, easing companies’ debt burdens

Published - March 15, 2024 08:39 am IST - CANNES, FRANCE

Drip down: Rob Wilkinson, CEO of France-based investor AEW, expects German office prices to decline 10% more in the first half of this year. 

Drip down: Rob Wilkinson, CEO of France-based investor AEW, expects German office prices to decline 10% more in the first half of this year.  | Photo Credit: AP

The global real estate industry is scrabbling around for reasons to be optimistic in the grip of its biggest crash in more than a decade, with developers and investors talking up the prospect of a recovery — just not quite yet.

Held this week in Cannes on the French Riviera, the MIPIM property conference unfolds against a backdrop of falling commercial real estate (CRE) prices and developers wondering what to do with offices emptied out by the pandemic.

As an expected 20,000 investors, developers and agents began arriving, delegates gathered around miniature models of planned developments and met clients on company-commandeered yachts. Many were busy discussing the market fallout, others trying to strike deals.

Several of the largest real estate investors, including U.S. giants LaSalle, Greystar, Hines and Federated Hermes, France’s AEW and Germany’s Patrizia, told Reuters they saw tentative signs of deal activity rebounding.

But some also struck a note of caution.

“There’s a lot of hot air being pushed through the Croisette,” Philip La Pierre, head of Europe at LaSalle Investment Management, said at the conference, referring to Cannes’ beachside thoroughfare thronged with estate agents. “So you’ve got to navigate that quite carefully.”

A punishing rise in borrowing costs and empty offices have combined to sour many property investments, although sectors such as data centres and logistics have held up much better.

European commercial capital values fell 13.9% year-on-year in the fourth quarter of 2023, the biggest drop since the global financial crisis in 2009, according to MSCI Real Assets data.

LaSalle’s La Pierre reckons 30% of European office space is “probably obsolete.” Prices in American cities are down sharply too as vacancy rates in the likes of San Francisco and Los Angeles near 30%.

Rather than realise losses, investors are sitting on the sidelines.

Commercial property deal volumes in Europe collapsed by half in 2023 to €166 billion ($181 billion), and it was the worst year for office sales on record, said MSCI, which has been collating the data since 2007.

Despite this, some investors believe a turnaround is near if central banks begin cutting interest rates, easing companies’ debt burdens.

“In general, there’s a renewed sense of confidence and enthusiasm for the year ahead,” James Seppala, head of real estate in Europe for the world’s largest commercial property owner, Blackstone, said ahead of the event.

“We have been active over the last few months, and we will continue to look to be active,” he added. A big test of improving sentiment will be MIPIM itself. Investors and property agents have been toasting deals at the annual jamboree since 1990, but there were few to speak of last year. “The worst of the market is now unsellable,” said Jose Pellicer, head of investment strategy at investor M&G Real Estate.

Europe has been less afflicted by visible signs of property distress than the U.S. and China, but sharp sell-offs have occurred for exposed lenders in Germany and Sweden.

Austrian property tycoon Rene Benko’s Signa Group, the co-owner of New York’s Chrysler Building, collapsed in November, rocking confidence further.

“There is a big real estate crisis ongoing which is global,” said Antoine Flamarion, co-founder of investors Tikehau Capital . “It might take some time to play out.”

Banks unscathed

Major banks have been relatively unscathed so far. Large European banks have been cutting CRE lending, according to Morgan Stanley.

This could put alternative lenders that tend to be more leveraged such as asset managers and insurers on the hook for more losses. They already make up about 20-30% of Europe’s CRE loans, according to Bayes Business School.

Whether the slump in office prices widens out into a broader crisis will depend partly on whether banks and developers can avoid crystallising losses until borrowing costs fall, or demand returns.

‘Extend and pretend’

Some lenders are re-adopting an “extend and pretend” approach to bad loans, a popular tactic after the 2007-09 financial crisis to avoid foreclosing on properties. “You extend and pretend simply because even if you enforce you probably couldn’t sell the asset in the current market,” Mathew Crowther, a managing director at investor PGIM Real Estate, said in the run-up to MIPIM.

Property prices could be closer to bottoming out in markets such as Britain, where prices have corrected faster, but are seen falling further in the likes of Germany. Rob Wilkinson, CEO of France-based investor AEW, expects German office prices to decline 10% more in the first half of this year. “Last year was one of the hardest capital-raising years ever,” Selena Ohlsson, director of real estate client solutions at Federated Hermes, said in Cannes.

But she said investor interest was returning, particularly from the West Asia and Asia Pacific: “I’ve got a bit more hope than I did last year.”

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.