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Expo Real: ESG Priorities surge amid cautious optimism in European real estate market

As environmental, social, and governance (ESG) considerations rapidly ascend the priority list of real estate investors, the European market is shifting gears. Transitioning from caution and price discovery, there's a modest uptick in activity, with all eyes on the EXPO Real event, Europe's premier real estate conference.

Several investors remain hesitant due to prevailing capital constraints and liquidity issues. However, a substantial faction is actively eyeing the logistics sector. Nick Cripps, the Head of Capital Markets at Panattoni, a renowned developer based in Warsaw, commented on the evolving market dynamics over the preceding year. Speaking to the trade journal "Expo Day", he noted, "There's a broad interest, but actual active buyers might be limited." He likened the situation to a pool that's "10 foot wide, but just one inch deep."

North American investors, while judicious, continue to channel capital into Europe's logistics sector. Alongside their counterparts, they're exploring developmental opportunities, especially assets anticipated to have significant liquidity upon stabilization.

The prevailing conditions favor buyers, especially those well-endowed financially. Industry insiders project this trend to persist for another year or more, with full market recovery not expected until 2025. This is due in part to global economic uncertainties and the unpredictable outcomes of the 2024 political elections in the US and UK. Although inflation is stabilizing and interest rates might have peaked, many corporations are delaying decisions on new spaces, potentially affecting short-term market dynamics.

Logistics real estate remains appealing to investors, primarily due to its robust fundamentals. Even with a minor surge in vacancy rates, the numbers remain in single digits, indicating a healthy demand. Developers like Panattoni are optimistic about the rapid absorption of any new market space in the coming two years.

Against this backdrop of cautious optimism, the emphasis on ESG, especially in light of recent climate calamities in Europe and globally, is unmistakable. Eri Mitsostergiou, the World Research Director at Savills, highlighted this in the daily trade paper "Expo Day". She emphasized the increasing financial urgency, with banks now vigorously advocating for ESG compliance.