Falling interest rates stimulate real estate transactions | Companies

A figure of 0.25 points is not much, but quite enough to change investor sentiment. The European Central Bank’s (ECB) interest rate cut last week from 4.5% to 4.25% could revive the market for big property deals, although the cut was timid as it shows the way for future cuts and encourages buyers. to improve your offerings. The sector hopes that the solution…

A figure of 0.25 points is not much, but quite enough to change investor sentiment. The European Central Bank’s (ECB) interest rate cut last week from 4.5% to 4.25% could revive the market for big property deals, although the cut was timid as it shows the way for future cuts and encourages buyers. to improve your offerings. The sector hopes that Frankfurt’s decision will reduce gap The conflict between buyers and sellers in recent months has paralyzed sales in Spain and throughout Europe.

Miguel Martinez, director responsible for debt advice at Colliers, argues that the planned reduction in rates should have a positive impact on the volume of real estate transactions. “In 2023, investment in Spain decreased by 40% due to gap “exists between supply and demand as a result of buyers adjusting their valuations downwards following rate increases, while sellers have made no or minimal adjustments to their price expectations.”

This type of investment refers to the purchase of properties intended for rental, such as office buildings, hotels, shopping centers, rental housing, student accommodation or logistics warehouses, among others. There are no official data on the volume of transactions; the consulting firms themselves provide their data. For example, last year the consulting firm Savills recorded a market drop of 46%, to 9.440 million.

Sergio Fernandez, Director of Capital Markets, JLL, believes that the biggest impact such rate cuts may have is “on investor sentiment” and that the downward trend in rates continuing over time will lead to a widening differential in real estate investment returns relative to fixed income. “However, a 25 basis point cut, unless accompanied by future cuts in the coming months, will not in itself have much impact on transaction activity,” he said.

Benjamin Gomez, Executive Director, Capital Markets, BNP Paribas Real Estate, believes there is no doubt that the confirmation of this first cut by the ECB represents a welcome change in trend among investors, giving them greater visibility and discretion in determining their investment strategies. “This first rate adjustment will not only encourage buyers, but we are also seeing an increase in the number of sales processes coming to market.”

Correspond Salva Pastor, debt partner at Cushman & Wakefieldin which sector agents have discounted this fall for some time, and what it can do is “encourage the market.” The transaction market is, on the one hand, a reduction in uncertainty, since a year ago the financial market. was subject to much greater volatility than the current one, and, on the other hand, a decrease gap between the price expectations of buyers and sellers.

Close the gap

Martinez from Colliers, Remember that rate cuts are projected to be progressive and ongoing over time. “In this context, the start of rate cuts announced last week should help reduce gap between supply and demand and thus contribute to the formation of new price benchmarks in the real estate market.”

This difference between buyers and sellers is especially true in Spain, a market where sellers are slow to realize that their properties are worth less when rates rise, stalling potential agreements with investors. Shepherd by Cushman & Wakefield, states that to the extent that some of the negotiated transactions are closed, price uncertainty will be reduced. “We believe there is still room to reduce prices,” he says.

Major transactions are currently expected, such as the sale of 50% of the Xanadú shopping center in Arroyomolinos (Madrid), which is in the hands of Intu, or the Canalejas complex in the capital of OHLA and Mohari.

“Actors who believe that prices will fall and, as a result, incomes will decline, will choose to invest at this market moment,” he predicts. Fernandez of JLL. According to this expert, a fall of just 25 basis points is too early to foresee an impact on prices, and he believes it will only have an impact if rate cuts continue and are persistently reflected in products. basic (best quality).

Gomez from BNP Paribas Real Estate, He believes what happens to prices will depend on sectors, location, and the contractual and safekeeping status of the assets. “However, the stabilization of yields makes us think about price stability in the short term,” he emphasizes, “and even a slight increase by 2025.” “The rules of the game are starting to become clearer, especially for investors.” I’m already making much more interesting offers for sellers, and positions are starting to converge,” he adds. Moreover, he believes that in 2024 the market appears to be approaching the expected certainty. “If we add to that a stabilization or even a rate adjustment of around 150 basis points over the next 18 to 24 months, the outlook for investors gets even better.”

Slight rebound

For Gomez from the BNP, 2024 will be characterized as more of a transition period, and he believes it may mark the start of a new cycle in which interest rates and inflation move toward more moderate levels. “Will this change in the cycle translate into a significant increase in investment? Probably no. “The increase is expected to be more pronounced in the 2025 period.”

Fernandez of JLLexplains that the transaction market is very active in products added value (with discounts because they need improvements) and opportunists with high profitability.

“It is in the second half of the year that we will see more activity and could see volume that may show moderate growth compared to the end of 2023, but in 2024 it will exceed 10%.” he expects, for his part, Shepherd by Cushman & Wakefield.

There is a similar opinion Miguel Martinez from Colliers, because it believes that an increase in the volume of transactions should be observed in the second half of the year, “as the reversal of the trend of rising interest rates will strengthen the return of capital to the real estate sector.” As such, he expects transaction volume in 2024 to be close to the average level over the past decade.

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