Inrev’s chairman: Capital allocation to CEE is going down

Inrev’s chairman Martin Lemke speaks out about the conflict in Ukraine and the impact of the war on non-listed real estate investment.

PEU: The war in Ukraine is prolonging beyond what was initially anticipated. Is INREV doing anything specific as an organisation to support Ukraine?
Lemke: This conflict is a real tragedy. The best contribution we can make is to do what we do best as an organisation. That means providing transparency, reporting who is doing what, and encouraging members to see what they can contribute.. We are monitoring with insights what is happening in the region and what the potential fallout will be from this.

PEU: What has the impact of the conflict been so far on the non-listed real estate industry?
Lemke: It is difficult to ascertain the impact so far, but we’ll learn more when our Q1 2022 market insights and sentiment survey is published in mid-June. What I can say is that we are constantly speaking to our members and everyone we have spoken to so far which is quite a number is saying that they are expecting returns to be lower in Q1 than the previous quarters. This is clearly not a surprise, but in particular the central European region has kind of lost steam. We are seeing that the closer you get to the critical area the more reluctant investors are to commit capital. This means that CEE is starting to lose capital allocation, the region is in fact already 7% down on a like-for-like basis, and I am pretty sure this will increase the longer the conflicts lasts.

PEU: Has the war led to any major changes of strategy from your members?
Lemke: There isn’t only the war. If we look at the landscape we are in, the war is a major issue we are facing, but there are other issues including a supply chain crisis and rising interest rates because of inflation. One result from the war is the energy crunch.
The current environment is leading to growing investors’ concerns, particularly with regards to the dynamics and volatility of the market. However, we should think that although it is hard to discuss opportunities on the back of a war, increased volatility always creates opportunities as well.

The concerns are also about the environmental crisis and where it is leading us to. At INREV’s annual conference in Athens we spent one day talking about the ESG impact which becomes even more critical at a time of energy crisis like the one we are in.
The Ukrainian crisis has brought about a delivery chain problem, we see energy prices rising, and this situation has an effect on both tenants and landlords. It might work as a catalyst to move faster along the decarbonisation path and to increase awareness about the environment.

PEU: Could you please comment on what you see as the main challenges and opportunities in the market?
Lemke: I guess the main challenge right now is that we have increased volatility. The Federal Reserve has increased rates by 50 bps, for sure the European Central Bank is also thinking of doing the same. Interest rates are expected to go up and the economy will likely slow down. So we are in a fragile place with regards to the economy. At the same time, I believe one of the greatest opportunities and challenges is brown assets and how to retrofit them to make them sustainable so that in over 10-15 years they are not going to be stranded assets. All in all, there is plenty of opportunities out there to create a better world.

PEU: How does INREV mostly finance itself? Can you comment on the financials of the organisation?
Lemke: We are a members association, so we are financed by our members and we are non profit. As an organisation we have roughly 25% of members that are investors, and about 75% are investment managers and asset managers, for a total of roughly 500.

PEU: What are you personally looking forward to most?
Lemke: I was really looking forward to the first live conference in two years. I am also looking forward to a more unified world. I hope that, after experiencing many crises over the past few years, the world might be able to move closer together once again, where people can still meet and speak with one another and find a new normality.



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