What Factors and Trends Are to Shape the Real Estate Sector in 2023?

Tighter Financing Conditions and Sustainability to Shape Real Estate Activity in 2023

At Gesvalt, we have published our Real Estate Trends Report for 2023. The study, carried out by the company’s Research Department, predicts an adjustment in the volume of home sales and purchases of around 10% for the coming year due to the rise in interest rates decided by the ECB and the decline in the citizens’ purchasing power. This circumstance, which will also lead to the stabilisation of housing prices and could even cause them to fall slightly during the last months of the year will also imply a shift in demand towards the rental market.

Despite this, our experts warn that there could be a decline in the supply of housing in this segment, due to the reluctance of some homeowners to put their properties on the market following the announcement that the 2% cap on Y-o-Y increases in rent will be maintained throughout 2023. For this reason, we should highlight the increased importance that will be gained by Build to Rent, with a growing investment volume in this sector in recent years to account for more than 50% of housing investment in 2022. In any case, both the rise in interest rates and the cap on rents could slow down the rising trend of this segment, since they impact directly on yields.

In this sense, our Trends report also asserts that one of the main challenges for this year will once again be to facilitate access to affordable housing for a large part of the demand, especially for young people.

This, along with the fact that 2023 will see the materialisation of the affordable housing projects of the European Next Generation funds and those that are part of the State Plan for Access to Housing 2022-2025, will boost the affordable housing market, which could become a safe haven asset for investors. This is due to the fact that investment funds are starting to see affordable housing as an opportunity with a stable yield, sustained demand and a return not only at the economic but also at the social level.

Also linked to Next Generation funds, as stated in our report, 2023 will be the year of building refurbishment and adaptation. In this regard, the need of compliance with sustainability criteria will oblige a large number of professionals to adapt to these “new” standards, since major changes will be observed in both traditional construction works and materials used in refurbishment and rehabilitation. It is currently estimated that around 80% of the building stock has a poor energy performance, so we expect a large number of homeowners’ associations to take advantage of the opportunity that the funds will provide to resolve obsolescence issues in the energy performance of their buildings.

Physical Sales Consolidate Omnichannel Retailing

After remaining unchanged for more than 10 years, the trend reversed in 2022, being the first period in which physical sales grew on a year-on-year basis above e-commerce sales. Specifically, the growth of the digital channel was 11%, compared to a 13% increase in traditional commerce. Our experts see this as a new enhancement of physical commerce by society and predict that, in the coming year and years to follow, the increases in both channels will evolve in parallel, truly demonstrating the achievement of omnichannel success by the retail sector.

Furthermore, this phenomenon arises in a positive period for the retail sector despite the difficulties experienced in 2022. In the past year, retail revenue was 4.2 billion euros, tripling the figure for the previous year and even exceeding the results of 2017 or 2018. High Street accounts for 70% of the total, practically 10 times more than in 2021, while investment in supermarkets accounts for 15%, in shopping centres 10%, and in retail parks 5%. Nevertheless, it should be noted that these investments have mostly been self-financed, given the tightening of financing conditions and the rise in interest rates. In the report, our experts assert that this trend will continue in 2023, with an increasing number of deals that do not require financing while the rest will remain in a “wait-and-see” position.

Growth in Face-to-Face Work to Increase the Need for Offices

With 2.6 billion investment volume in 2022, there is no doubt that the office sector remains a strategic segment for investors, accounting for 19% of non-housing investment in the real estate sector.

In this context, 2023 is expected to be a stable year for this segment, slowed down by the tight financing conditions, but supported by European funds, which will back fixed investment and an expected good evolution of both the volume of transactions and yields. In this regard, at Gesvalt, we see the potential increase in companies’ floor space needs as a key factor, given the upward trend in the face-to-face work model, which rose by more than 50% in 2022.

Sustainability of the Logistics Sector to Be a Key Factor

With the new legal regulations, the commitment to a more sustainable logistics sector will be crucial in 2023, as stated in our report. To achieve this, the sector will have to invest in technological advances such as machine learning or process automation to comply with regulatory requirements and maintain competitiveness.

In this regard, at Gesvalt we observe that the logistics market will require more and more workforce talent specialising in technological aspects, so artificial intelligence and data analytics will have increasing relevance in the progress of the sector.

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