Real estate investors are hopeful that today’s interest-rate cut by the European Central Bank’s (ECB) will help increase transaction volumes and encourage international capital to return to European property markets.
The ECB cut its benchmark deposit rate by 25bps to 3.75% on Thursday, following a fall in euro-zone inflation of more than 2.5 percentage points since September 2023.
Mahdi Mokrane, head of global investment strategy, research and investment solutions at real assets fund manager Patrizia, said the decision should encourage “more deal activity” and “help market fundamentals”.
Karolis Adlis, executive director at WP Carey, said: “Today’s cut in rates indicates that the worst of inflation is behind us and markets should only get more stable, boosting transaction activity.
“While we still have a long way to go, this cut should help drive further confidence for investors, particularly in real assets, and will encourage sellers to sell and buyers to buy.”
The ECB warned that price pressure remained high and was circumspect about future rate cuts, saying it was “not pre-committing to a particular rate path”.
Mokrane said: “It certainly won’t be the cavalry on the horizon that some might be hoping for, as one cut alone is unlikely to have a material impact on market dynamics overnight, particularly as it’s been long-anticipated, so largely priced in.”
“However, it is undoubtedly a step in the right direction for creating more supportive and constructive market activity.”
Mokrane said Patrizia believes Europe will become more attractive as a result of the interest-rate cut, “as bid-ask spreads tighten, encouraging more deal activity amongst market participants”.
He added: “And it will certainly help market fundamentals for core as well as value-add opportunities across sectors and asset classes, playing to the strengths of those with high-conviction in both re-priced core and higher-octane value-add strategies like us.
“From a liquidity standpoint, we anticipate it will bring more international capital to the market which has been frustrated and on the sidelines waiting to deploy. For investors who remain overallocated to real assets, we might even see more motivated net sellers.”
Mokrane said the rate cut would also encourage banks to begin lending again, “supporting values and alleviating some pressure on interest cover ratios”.
He added: “Ultimately, this is a story of bears and bulls, and a rate cut will certainly see a higher cohort of bulls returning to the market. Encouragingly, this year we have already started seeing the early signs of stabilisation in the real assets market with a pick-up in capital raising in Q1. So more bulls returning to the market will only help keep this momentum moving in a positive direction.”
Dominique Moerenhout, the CEO of EPRA, said the cut provided welcome relief and demonstrated the ECB’s confidence in the euro-zone’s ability to manage the risks of rising prices and in inflation staying consistently lower.
“For listed real estate, the move creates a climate for growth. In bringing down the cost of borrowing it will shore up confidence to commit and invest capital in new and existing assets – a confidence that has been battered by uncertainty in recent years. Greater investment is good news for employment in the sector and for the environments we all live and work in.
“The rate cut also helps ease a costly headache for those approaching refinancing. With financing typically long term in our sector, locking in lower rates is vital to the cost of business for the years to come,” Moerenhout said.
Adlis said the cut would have a “net positive effect” on the sale-and-leaseback market in Europe, as it will “provide investors with cheaper capital”.
He said: “This, in turn, should drive increased deal volume. We therefore remain very optimistic about our ability to identify and close attractive deals.”
To read the latest IPE Real Assets magazine click here.
