The consultancy firm CBRE is expecting the real estate sector to recover soon. After months of uncertainty – which has dragged down returns and property prices – there is a window of opportunity for investors in the coming months.
Adolfo Ramírez-Escudero, president of CBRE Spain and Latam, says, "We are two-thirds of the way through the price correction. The next 12 months will be a great time to invest.
As the consultancy firm points out, the effects of the pandemic and the impact of rising interest rates on asset values have put downward pressure on the return on real estate investments in recent years. Its calculations show that investments made between 2018 and 2022, measured as future rental income and the evolution of asset prices, recorded a negative return over a five-year horizon.
However, in the coming months – as interest rates and economic activity stabilise – the situation will begin to reverse.
According to CBRE, the market is entering a "Key phase of the cycle where prices will finish adjusting, and investment activity will accelerate. We are at a turning point in terms of real estate market transformation. We have come from a decade of low-interest rates and sustained growth in activity, where the cost of money has allowed the real estate sector to grow. We are now entering a new phase. There will be more competition for capital but also more opportunities to transform and create value through real estate.
The window of opportunity will occur in the next 12-18 months. He recommends investors "to be attentive because good property portfolios can be created," although the consultant also recognises that not all real estate segments will be equally interesting. "Real estate is a cyclical sector, and each stage generates sectors that gain strength and others that become secondary. In this new cycle, the Living, Hotel and Healthcare sectors are the ones that are gaining strength," stressed CBRE.
Following on from the trend of recent months, housing, hotels, and health-related assets will remain the most prominent.
According to CBRE data, the market share of 'Living' has reached 31.4% of total investment in the first half of the year, above the average of 22.4% recorded between 2018 and 2022. The same trend is seen in the hotel sector, with a weight of 26.8% in the first six months of this year compared to 19.7% between 2018 and 2022, and the 'Healthcare' segment, with a weight of 8.6%, almost double the average of the last four years.
Other segments that will also offer opportunities are those related to the implementation of digitalisation and artificial intelligence, the development of data centres and the application of data in the real estate sector.
For traditional assets, such as offices, the opportunities will be linked to modernisation to achieve more sustainable buildings with better features focused on the user experience. "In general terms, the stock in Spain is old. Economic obsolescence is accelerating, and we need to invest more and more often to maintain occupancy and asset value," concluded Adolfo Ramírez-Escudero.