subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now
Picture: 123RF
Picture: 123RF

Cannes, France — The global real estate industry is scrabbling about for reasons to be optimistic in the grip of its biggest crash in more than a decade, with developers and investors talking up the prospect of a recovery — just not quite yet.

Held this week in Cannes on the French Riviera, the MIPIM property conference unfolds against a backdrop of falling commercial real estate (CRE) prices and developers wondering what to do with offices emptied out by the pandemic.

As an expected 20,000 investors, developers and agents began arriving, delegates gathered about miniature models of planned developments and met clients on company-commandeered yachts. Many were busy discussing the market fallout, others trying to strike deals.

Several of the largest real estate investors — including US giants LaSalle, Greystar, Hines and Federated Hermes , France's AEW and Germany's Patrizia — said they saw tentative signs of deal activity rebounding.

But some also struck a note of caution.

“There's a lot of hot air being pushed through the Croisette,” Philip La Pierre, head of Europe at LaSalle Investment Management, said at the conference, referring to Cannes' beachside thoroughfare thronged with estate agents. “So you've got to navigate that quite carefully.”

A punishing rise in borrowing costs and empty offices have combined to sour many property investments, although sectors such as data centres and logistics have held up much better.

European commercial capital values fell 13.9% year on year in the fourth quarter of 2023, the biggest drop since the global financial crisis in 2009, according to MSCI Real Assets data shows.

LaSalle's La Pierre reckons 30% of European office space is “probably obsolete.”

Prices in American cities are down sharply too as vacancy rates in the likes of San Francisco and Los Angeles near 30%.

Rather than realise losses, investors are sitting on the sidelines.

Commercial property deal volumes in Europe collapsed by half in 2023 to €166bn, and it was the worst year for office sales on record, said MSCI, which has been collating the data since 2007.

Despite this, some investors believe a turnaround is near if central banks begin cutting interest rates, easing companies' debt burdens.

“In general, there's a renewed sense of confidence and enthusiasm for the year ahead,” James Seppala, head of real estate in Europe for the world's largest commercial property owner, Blackstone, said ahead of the event.

“We have been active over the last few months, and we will continue to look to be active,” he added.


A big test of improving sentiment will be MIPIM itself. Investors and property agents have been toasting deals at the annual jamboree since 1990, but there were few to speak of last year.

“The worst of the market is now unsellable,” said Jose Pellicer, head of investment strategy at investor M&G Real Estate.

Europe has been less afflicted by visible signs of property distress than the US and China, but sharp sell-offs have occurred for exposed lenders in Germany and Sweden.

Austrian property tycoon Rene Benko's Signa Group — the co-owner of New York's Chrysler Building — collapsed in November, rocking confidence further.

“There is a big real estate crisis ongoing which is global,” said Antoine Flamarion, co-founder of investors Tikehau Capital . “It might take some time to play out.”

Major banks have been relatively unscathed so far. Large European banks have been cutting CRE lending, according to Morgan Stanley.

This could put alternative lenders that tend to be more leveraged such as asset managers and insurers on the hook for more losses. They already make up about 20%-30% of Europe’s CRE loans, according to Bayes Business School.

Further to fall?

Whether the slump in office prices widens out into a broader crisis will depend partly on whether banks and developers can avoid crystallising losses until borrowing costs fall, or demand returns.

Some lenders are readopting an “extend and pretend” approach to bad loans, a popular tactic after the 2007-2009 financial crisis to avoid foreclosing on properties.

“You extend and pretend simply because even if you enforce you probably couldn't sell the asset in the current market,” Mathew Crowther, a MD at investor PGIM Real Estate, said in the run-up to MIPIM.

Property prices could be closer to bottoming out in markets such as Britain, where prices have corrected faster, but are seen falling further in the likes of Germany. Rob Wilkinson, CEO of France-based investor AEW, expects German office prices to decline 10% more in the first half of 2024.

“Last year was one of the hardest capital-raising years ever,” Selena Ohlsson, director of real estate client solutions at Federated Hermes, said in Cannes. But she said investor interest was returning, particularly from the Middle East and Asia Pacific: “I've got a bit more hope than I did last year.”


subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.