The sharp rise in interest rates over the last 18 months has been ‘too much for the market', with no time for it to find a new balance, according to Jochen Schenk of German asset manager Real IS.
Speaking to PropertyEU on the first day of Mipim, the CEO of Real IS said the firm had a lot of clients in the banking sector. As a consequence of inflation and rising interest rates, they saw a depreciation of their bond holdings and growth in real estate in their portfolios, without investing. ‘For many this means they have to reallocate funds and so they sell,’ he explained. ‘There is not much buying going on.’
Picking up on this week’s news of the Silicon Valley Bank collapse in the US, Schenk said a positive outcome of the SVB crisis was that central banks 'will be more cautious going forward. Maybe they raised interest rates too fast'.
As for institutional investors, they were continuing to ‘wait and see’ until the pricing was right, he remarked. ‘In that investment climate the SVB upheaval comes along and it is a warning sign.’
Schenk said he believed central banks would be more careful going forward. ‘Interest rates will not rise that much anymore, central banks will be cautious,’ he said.
Despite easing off, inflation will remain high, he believes. ‘Maybe it will not go lower than 4%, but we can handle that,’ he said.
The Real IS boss said the impact of the ongoing war in Ukraine was not as big as is often thought. ‘Institutional investors are not so affected by it,’ he noted. Also, internationally, the perspective is very different. Real IS does not only invest ‘from Finland to Portugal’ as Schenk put it, but is also active in Australian real estate. In that market, ‘they don’t feel any influence from the war in Ukraine’, and there is there is no energy shortage or inflation as a result, he said. The same is true of Japanese investors, who are interested in real estate in Europe and are ready to make a deal.
Schenk said Real IS was busy setting up new pan-European funds for the longer term, such as a residential fund in Ireland and a leisure hotel fund. The Ireland fund aims to meet the housing needs of those who would like to rent. ‘Unlike most other countries, Ireland has historically always had very little rental housing property, it is a market for homeowners,’ Schenk said. ‘Now that prices have risen and interest rates have gone up, there are even fewer people that can afford to buy.’ Real IS is setting up a branch office this summer to speed up residential projects in the country.
The leisure hotel fund will target the family-owned segment, where a next generation of family managers is often lacking. In the Mediterranean on the Italian and French coasts there are many such hotels, and the same goes for the German part of the Baltic Sea. ‘We also want to take advantage of the trend that people increasingly want to take shorter vacations of say four days, but then they want luxury accommodation,’ said Schenk. He noted that since the pandemic, more people are opting for vacations closer to home which they can get to easily by train or car. ‘Leisure hotel chains are on the rise, and we are willing to invest in that.’
