Frankfurt is one of Europe’s leading financial centers and many German and international real estate investors have their continental headquarters there. I have visited the city regularly for more than 20 years to keep on the pulse of the international investment atmosphere and trends.
Last week, it felt great to be to be back again and to have real face to face meetings with clients and friends – after a two-year pause. The feeling of togetherness and being able to communicate live is important for me.
This time, the business trip offered an unexpected bonus experience as the city went completely bonkers during my visit. Eintracht Frankfurt won the Europa League Final in Seville on Wednesday last week, winning their first European title in 42 years. Up to 100,000 fans celebrated the victory on the streets occupying the main square and a large part of the city center.
The business discussions with key European decisions makers were extremely interesting. Everybody shared the view that the future looks foggy and no one really knows where we are heading in the long run. The short-term view is that property prices will decrease but it’s difficult to see how much. The main reasons are:
- Interest rate increase
- Inflation
- Uncertainty in the office segment due to remote working
- Overall uncertainty in the world economy
However, the good news was that many of the big and solid investors will continue to invest despite falling prices, as no one knows when the market turn comes. This gave me the insight that the real estate market has progressed a lot during the last decade and now acts very professionally. The real estate market now masters the same structures and methods as the stock market. The difference naturally being that with direct real estate holdings the speed of change is far slower than in shares.
To conclude, it seems that we are facing a market environment that many current asset managers have never experienced before. During the last 15 years, both interest rates and inflation have rather gone downhill and the exit values in the business calculations have been positive. Easy times are over. One very experienced investor told me that he had said to the team, that they now may need to consider putting an exit value under the acquisition price – but the team didn’t understand. However, in some cases this may be necessary.
Aarne Nurminen
Chairman of the Board
