Banking sector turmoil, interest rate rises, US mortgage defaults - Robin Marriott reflects on market developments since Mipim.
It is a few weeks since Mipim, and not much has altered. Things are still very quiet on the investment front, relatively speaking.
All the latest views on the real estate investment market can be found in our extensive coverage from the trade show in Cannes (page 10, May-June issue). The only thing I would say that has changed since the time of writing is the sense of a fresh banking ‘crisis’.
In March there were genuine concerns of one erupting, but in April shares in the major global banks strengthened. JP Morgan Chase, Wells Fargo, and Citigroup, for instance, have made gains amid financial updates showing surging revenue. As JP Morgan boss Jamie Dimon said: ‘You’ve already seen things calm down quite a bit.’
That said, the issue contributing to a major slowdown is still very much with us – interest rate rises. On 23 March, the Bank of England announced another 0.25% increase from 4% to 4.25%. That came more or less at the same time as the European Central Bank said inflation was projected to remain too high for too long and therefore raised rates by another 50 basis points. At almost the same time, the Federal Reserve in the US said it would raise rates by another 0.25%, also citing elevated inflation. US interest rates are at 5% compared to 0.5% a year ago.
Could it be the commercial real estate sector itself is the ‘systemic risk’? Oaktree’s co-founder, Howard Marks, thinks so. He warned CNBC in an interview that US mortgage defaults could spook banks.
The new norm is having interest rates at these higher levels. Consequently, you would expect we are well into a new cycle from an investing standpoint, and every asset class is affected in some way. Layered on top of the macro-economic factors are other long-term drivers affecting real estate.
One of them is our new best friend, ESG. The effect of energy efficiency objectives is wide across asset classes, but this month we turn the spotlight on logistics and warehousing. As part of PropertyEU’s Top Logistics Developers ranking, we report on what the sector is doing to meet increasingly stringent sustainability requirements.
Meanwhile, across Europe, deals are still taking place and kudos to those that manage them. During Mipim, Swiss firm Stoneweg signed a complex hotel transaction. We were impressed by the company’s story, hence it is featured in this month’s Big Interview.