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European real estate companies expect growth and further investment in innovation, despite economic challenges in 2023

February 10, 2023
  • 37 percent of companies expect further revenue growth, 25 percent expect declining revenues, 37.5 percent expect stagnation
  • Interest rates and threat of tenant and buyer defaults cloud 2023 expectations
  • ESG is not a revenue driver – but implementation is still in its infancy
  • Increase in NPL- and Restructuring deals to be expected
  • Despite economic challenges, innovation budgets are increasing in 2023

Frankfurt am Main, 10th February 2023 – European Real Estate professionals anticipate business growth despite high interest rates and growing inflation in 2023. Over 37 percent of real estate companies in Europe expect revenues to increase this year. This research* is based on a study conducted by Drooms, the leading provider of digital platforms for real estate assets in Europe, which surveyed 229 real estate experts in Europe on their predictions for 2023.

The survey respondents see rising interest rates (42 percent) as well as payment defaults by buyers and tenants (24 percent) as having the biggest impact on revenues. Inflation (15.7 percent), high construction costs (10 percent) and the shortage of skilled workers (4.4 percent) play only a minor role. Only 1.75 percent of the respondents expect climate protection regulation to have an impact on revenue.

Indeed, real estate activity dropped off towards the end of 2022 as the impact of rising interest rates in the US and Europe knocked sentiment,” says Alexandre Grellier, CEO and Co-Founder of Drooms. “The first half of 2023 will see real estate dealmakers focus predominantly on NPLs, off-market deals and restructuring opportunities. Distressed deals are also expected to increase as the pressure builds on real estate balance sheets. There will also be a focus on smaller, single asset deals. Smart investors will be monitoring the market closely and making sure they are ready to transact as soon as market conditions improve”.

Twenty-four percent of respondents see the biggest opportunities in residential investments in 2023, followed by logistics (21 percent), healthcare (15.7 percent), office (11.4 percent), retail (10 percent) and industrial real estate (9.6 percent). Real estate professionals are most sceptical about the hotel asset class, with only 8.3 percent seeing the greatest opportunities there in 2023.

Defensive investment strategies seem to be on the rise again. Residential is  a relatively risk-proof asset class.  Logistics is very strongly supported by an occupier market that has been propelled by e-commerce demand and is therefore a safe investment. Fuelled by demographic change, investors are also exploring the healthcare market. Retail is taking a hit due to the shift to online shopping and the squeeze on consumer spending in the face of rising inflation. Investors are continuing to lose faith in the office as the market deals with the ongoing fallout from lockdowns and the growth in home working. The office space also has challenges facing lower quality assets that do not meet investor and occupier environmental requirements,” says Grellier. “It is interesting that very few of our survey participants expect the topic of climate regulation to have a significant impact on  revenue, especially as ESG will continue to be one of the biggest topics of 2023.”

Thirty-eight percent of the respondents said they were still at the very beginning in terms of preparing for ESG compliance. As many as 19.7 percent have already informed themselves about the requirements, but have not yet started the implementation process. 32.75 percent are already comprehensively prepared for the implementation of ESG measures in order to be able to comply with future regulation.

Digitalisation can make a significant contribution to ESG compliance. When it comes to managing and searching documentation for ESG regulation, there is still an incredible amount of room for improvement. Many processes still suffer from time-consuming filing and research,” says Grellier. “Consequently, despite the ongoing economic challenges, many market participants want to further increase their digitalisation budget. Technology and digital integration is important for future-proofing their organisations”.

More than 78.6 percent of respondents said they want to increase their innovation budget in 2023. In contrast, 21.4 percent want to spend less money on innovation and digitisation.

Digitisation continues to be an urgent matter for the industry, perhaps more so than ever in times of crisis. This is positive news for us as we  continue to pursue our vision of becoming the platform of choice for the entire lifecycle of real estate assets,” Grellier concludes.

*Drooms conducted this research study Real Estate Outlooks 2023 was conducted during December 2022.

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