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The future of the real estate market in Europe: risks and opportunities

Real estate, economy and sustainability: themes that matter to all and that were up for debate at an event organized by Worx Real Estate Consultants and PLMJ, on the 27th of October, on the future of the European real estate market. Following this event, a morning of intense sharing of visions and opinions, the question remains: what is the future of Portuguese real estate in the European context?


The present and future of the European real estate market

The impact that the European macroeconomic environment has on Portuguese real estate is unquestionable. Samuel Duah, Head of Real Estate Economics at BNP Paribas Real Estate, shared some relevant data, highlighting that we are now witnessing a slowdown in the global economy, after 5 years of growth. Mainly resulting from the Covid-19 pandemic and, currently, from the War in Ukraine, this stagnation of the European economy is also linked to the slowdown in global trade and geopolitical risks, which contributes to a climate of uncertainty (for which Brexit is not indifferent).

High inflation, the consequent increases in interest rates and the pressure on yields, will rebalance in the near future due to the macroeconomic situation. Recognizing and accepting these facts is the best way to look to the future of real estate, maintaining an indispensable optimism.


What is the main challenge in the future of the real estate market?

“We have to focus on the opportunities that are emerging and it is urgent to rethink real estate assets. This can involve reconverting them, valuing the square meter and building houses suited to our real needs and capacities: for example, with a smaller area and more efficient”. In the words of Pedro Rutkowski, CEO of WORX, sustainability is one of the main, if not the challenge for the real estate sector in 2023, since new developments will have to be thought from the point of view of sustainability, given that the financing parameters will take these same factors into account. In summary, sustainable projects will have more favorable financing conditions, which will encourage promoters to embark on them.

In another context, Pension and Real Estate Investment Funds (national and international), which are the major players in the market, will have in their management regulations the obligation to acquire assets with sustainability certifications. On the other hand, the tenants themselves will increasingly require that these assets be certified. In this way, they meet energy efficiency requirements, but also comply with their ESG rules, which are increasingly present in the Accounts of large companies. It is also important to look very carefully at the future of taxonomy, which, having a real financial cost, will change and dictate the entire real estate paradigm.

The future of the real estate market also involves the wider and more frequent use of GreenLeases contracts, which create parameters for the use of spaces. Responsibilities now lie not only with the owner of the asset, but also with the tenants, who will have to ensure that the asset is used in accordance with the building’s rules and certificates. There is a clear commitment between owner and user, which until now did not exist in this field, and which also represents a new paradigm.


The urgency of the evolution of legislation to accompany the future of the real estate market

In the opinion of Rita Alarcão Júdice, partner and co-coordinator of PLMJ’s Real Estate and Tourism area, we are now seeing new goals and criteria for evaluating real estate properties already considering the environmental impact, and underlines, “It is critical that there is an awareness that real estate portfolios will be impacted by this reality”. But it is not enough for investors and owners to act in this area. There is a long way to go in terms of streamlining the licensing processes, so that it is feasible to meet the defined energy targets, and the objectives that Portugal proposed under the Paris Agreement. Legislation must follow the evolution of market needs, so that it is no longer an obstacle in this energy transition process. In this sector, PLMJ has also sought to be at the forefront, anticipating needs and seeking to have an active voice so that companies can succeed in this path.


The future of the real estate market necessarily involves sustainability

In a market that values ​​quality more and more, and ESG criteria being fundamental in the commercial real estate market, the future of the real estate market must necessarily involve sustainability. This being the destination, the path must begin to be traced now, taking advantage of the opportunities that the energy transition triggers, not allowing, on the one hand, that the assets become obsolete and, on the other hand, preparing and valuing them for a future that starts today.

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