A Bumpy Road Ahead, but Reasons for Optimism: Key Takeaways from MIPIM 2023

Last month, 23,000 CRE professionals traveled to Cannes for MIPIM 2023 – Europe’s largest real estate conference. Attendees soaked in the French Riviera sun on La Croisette as they gathered to discuss today’s real estate market and the potential opportunities and challenges that lie ahead. Shakeups and surprises in the financial markets took center stage, but optimism about the future of the commercial real estate market remained. Here were the three biggest topics that dominated the discussion and our perspective on what it means for the future.

Financial market turmoil

The conference kicked off amidst the largest banking failure in more than a decade with the collapse of Silicon Valley Bank (SVB), followed by the dramatic fall in the stock price of Credit Suisse and the subsequent announcement that UBS would be acquiring the company. The banking sector turmoil became a hot topic of conversation, with delegates divided over the economic impact of these micro-shocks. Some believed the downfall of SVB and Credit Suisse were not a signal for the entire economy, given SVB operated in a very specific ecosystem and Credit Suisse had faced a number of problems going back several years. Others felt it was eerily similar to the bank failures in 2008 and an indication we are moving into a financial crisis. 

Laser focus on interest rates

For some delegates, the outlook off the back of the banking turmoil remained positive, as many thought the banking crisis would help stave off the Central Bank’s appetite for rate increases in their battle against inflation. Ultimately, this proved to be short-lived given the European Central Bank’s decision to raise interest rates across the Eurozone by 0.5 percentage points on March 16 and the Federal Reserve’s move to raise rates by 0.25 percentage points the following week. 

Interest rates, and the broader discussion concerning the pace of hikes, were topics already in focus long before MIPIM began. However, during the conference, there emerged a growing consensus that we are entering a new stage of the market with higher interest rates likely staying for the foreseeable future and old pricing levels now a thing of the past. 

Opportunities still available

Where to source attractive investment opportunities was another key topic in Cannes. Similar to years prior, logistics led the way with regard to positive investor sentiment. Attendees agreed the fundamentals for the asset class remain strong, although in some markets many pointed out that logistics cap rates were slow to adjust to rising interest rates. Office, on the other hand, has largely fallen out of favor with investors given work-from-home and hybrid schedules remaining in place for many companies. 

Our perspective

If an economic downturn is on our horizon, W. P. Carey is well positioned to weather the storm given we have a 50-year history of operating in all economic cycles. Our portfolio diversification, disciplined underwriting and lease structuring, and our well-positioned balance sheet, make us one of the safest REITs in terms of downside protection.  

As an all-equity buyer, W. P. Carey also remains well positioned to execute on deals and offer certainty of close given we aren’t reliant on third-party debt financing. For example, we recently announced a cross-border sale-leaseback of an industrial portfolio in Spain and Italy with Siderforgerossi, a leading manufacturer of specialized forged metal components. The facilities represent a significant portion of the company’s manufacturing footprint and are triple-net leased for a term of 25 years with annual rent increases.

Despite the bumpy road ahead, I remain optimistic about the future. Rising interest rates make sale-leasebacks a more attractive financing option for corporates on a relative basis, meaning we’ll likely see an influx in opportunities in 2023. We always say that sale-leasebacks are a good tool in good times, but a great tool in uncertain times, and this sentiment couldn’t ring more true than it does today.