With no sign of interest rates coming down in the forseeable future, financially pressured companies will increasingly seek to unlock value from their real estate to deliver on their business strategies, predicts leaseback specialist WP Carey.
Looking ahead to this year’s Expo Real, the firm’s head of European investments, Christopher Mertlitz, said that many corporates were still grappling with the question of how to deal with rising financing costs. ‘In this high-interest rate environment, access to, and the flexibility of liquidity, are key to ensuring that corporates can continue delivering on their growth strategies and meet their business objectives,’ he said.
Mertlitz also expects more private equity firms to turn to sale-leaseback solutions to fund and support the growth of their portfolio companies. He pointed to the recent sale-leaseback deal WP Carey carried out with European metal components manufacturer Siderforgerossi as a case in point. Siderforgerossi is a portfolio company of private equity firm KPS Capital Partners.
In terms of sectors, Mertlitz said WP Carey would continue with its sector-agnostic approach, focusing on ‘mission-critical’ assets. The industrial and logistics sector continues to be a sweet spot for the firm due to its strong fundamentals, while select retail segments such as grocery and DIY stores also offer strong potential.
Turning to the mood at Expo Real, Mertlitz said he expected macroeconomic and ESG issues to dominate debate. ‘We expect the conference this year to focus on important issues including the impact of global monetary policy decisions on the real estate market and the industry's adoption of ESG, particularly around sustainability concerns such as decarbonisation.
‘With the European Central Bank raising rates to an all-time high last month in its bid to lower inflation, the biggest discussion point will undoubtedly centre on when the current hiking cycle will reach its end, and when price corrections will bottom out.’
He added: ‘We do not expect to see any interest rate cuts in the current environment for the foreseeable future and therefore, we expect the financing environment to remain challenging within the near- to mid-term.'
Mertlitz said he also expected downward pressure on valuations to continue, noting that 'this will particularly effect Western European real estate markets'.