The three best-read stories this week by respected German publication Immobilien Zeitung were of delegates out on the town in Munich at night wearing big smiles and holding beers. 

But behind the smiles, there are cracks in the real estate industry.

Conversations at Expo went along the lines of small and medium-sized developers being in big trouble, given projects are financially under water. Being technically insolvent, they are subject to refinancing issues.

While some suggest there may be some companies that are too big to fail that will receive the necessary refinancing, SMEs with projects in the €10 mln to €50 mln range might not be so lucky.

More widely speaking for the property investment community, rising interest rates are worrying people given the implications for valuations.

Among the UK contingent, there are whispers of big domestic investment houses starting to offload property on the quiet. There is also an evolving story around swap rates moving out between the time of contracts exchanging and completion, potentially making deals unprofitable. Some transactions still proceeded.

Now, against this climate we have a situation where long-term investors are happy to be in real estate. That said, within each asset class, there are dividing lines to be observed. Take logistics, for example, where those on the occupational side of the market seem to feel great because the fundamental demand for space has never been greater. Yet logistics investment professionals are talking of price corrections and are cautious.

Circling pockets of the market are real estate funds who believe an opportunity set is about to unfold, which they can profit from. In the listed sector, one investment banker said he believed the wide gaps between NAV and share price could lead to take-privates to a significant degree sometime in 2023.

Expectations of distress are tempered, though, because there is an institutional memory of the GFC of 2008 when it took much longer for deals to materialise and the way ‘bad banks’ got created to organise and manage out portfolios.

The consensus seems to be that normal real estate deals will probably continue to get done between now and next spring across various sectors, geographies and deal types, though at a likely slower pace.

There are many people taking a pause right now, seeing no good reason to sell. And being nervous on the buyside. That stance ought to lead to a material deceleration.

To repeat a hilarious comment from an anonymous German investor that our correspondent Isobel Lee heard: ‘We knew a black swan was coming. We just didn’t realise he was going to bring all his buddies.’

Read PropertyEU's other commentaries from Expo Real 2022:

Delegates piece together uncertain outlook at Expo
Confidence in the long term
In a climate of uncertainty, Expo delegates seek clarity