With the first interest rate cuts in the Eurozone in a long time, optimism has also returned to the banking sector, as the participants of the banker panel at the CEE Property Financing Update 2024 conference unanimously concluded. However, it is limited by factors such as the uncertain political situation in the United States or the EU taxonomy, through which many older buildings may become troubled assets for their owners. The event, held at the end of September in Warsaw, was organised by Property Forum and law firm CMS.
The high interest rates in the euro area froze the investment market for years and virtually every banker in Europe was waiting for the announcement of a reduction, as Hubert Manturzyk MRICS, General Manager CEE at Aareal Bank AG aptly described: „The new trend of falling interest rates should be positive for the investment market because what happened two years ago made quite impossible for potential sellers and buyers to reach an agreement on the price because of the high cost of financing. This gap should shrink in the coming quarters and will improve the potential for new transactions”, said Mańturzyk.
Hannes Wimmer, Managing Director, Loan Capital Markets at Erste Group Bank AG pointed out that the positive effects of the announcement of the reductions are already visible in the developer bond market. „What is quite important to see is that after two years of freeze, the bond market is open now and we have seen around €5 billion of new issuance in the European markets for real estate companies. This is seen as a window of opportunity, and together with the rate cuts makes real estate a more interesting industry. The fear that bonds cannot be refinanced because of the closure of the market seems to be a little bit now off the table, and also gives a livening signal to the transaction market”, said Wimmer.
However, stability in the geopolitical sphere is lacking for full optimism. The war in Ukraine, the conflict in the Middle East and, in particular, the uncertainty over the outcome of the US presidential election are factors whose impact on the global economy is as significant as it is difficult to assess. „What is going to happen in America might impact our market severely because we are interdependent. Germany depends a lot on Chinese and American markets. At the same time, many European countries depend on Germany a lot. We are all connected. I’d say we are not Europeans - we are globals”, said Martin Erbe, Head of Real Estate Finance DACH - CEE – Benelux at Helaba.
The spectre of the revolution introduced by the EU's taxonomy legislation and the requirement for all buildings to be zero-emission by 2050 is also increasingly looming over the European property market. For many older buildings, the cost of adapting them to the new regulations may exceed their market value, so they will have to undergo a change of function, be demolished or, in the worst-case scenario, simply abandoned, as is already evident in many Western European cities. According to Péter Számely MRICS, Head of Real Estate Finance CEE at HYPO NOE Landesbank, „there will be regulatory changes from the beginning of next year, meaning that development loans generally will be probably more expensive. Turning a brown building into an EU taxonomy-compliant asset will probably get more attention from banks, and perhaps will also be cheaper than a normal development loan. If the cost of changing or transitioning a building into a taxonomy-compliant asset can be managed, then probably this could be the way forward. It depends certainly on the age of the building and what investment you need to add to make it taxonomy compliant. But in many cases, it should be a valid solution to the problem”, said Számely.
