International Real Estate

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International Real Estate

Published July 2022

Author

Dr. Niko Schultz-Süchting

Firm: Freshfields Bruckhaus Deringer Rechtsanwälte Steuerberater PartG mbB
Country: Germany

Practice Area: Real Estate

  • Hohe Bleichen 7
    Hamburg
    20354
At Freshfields, we advise all participants of the real estate industry across Europe and beyond. Our routes to the real estate market, our knowledge of not only the legal aspects, but also the commercial parameter and the relevant persons, are second to none. We have invented and advised on various innovative deal structures and debut transactions across Europe for decades. The main driver for the quality of our group is the collegiality between all members of our European real estate group, and the pure dedication to the real estate industry. 

Our coverage of many European jurisdictions (Austria, Belgium, France, Germany, Italy, Spain, the Netherlands and the UK) allows us to advise on cross-border investments (i.e. where an investor invests abroad and requires help in their home jurisdiction as well as the jurisdiction of the investment) and on pan-European deals (i.e. where an investor buys a bunch of assets located in various jurisdictions). With our local offices throughout the world, and the partner law firms from our StrongerTogether network, we also advise on numerous transactions for European investors in the US and all over Asia. 

At the Forefront of Digital Innovation

With the Freshfields Lab, we have a strong interdisciplinary unit focused on delivering legal innovation. One of our most successful inventions is a proprietary digital collaboration platform, by which production and access to due diligence review results has developed radically to become much more user-friendly than the classical Word or PDF files of the past. In addition, data-driven reporting is provided in the form of interactive dashboards – a tool that increases legibility and usability of the report and the underlying data, also decreasing costs due to substantial efficiency gains. With this platform, we are at the forefront of the market.

Market Trends and Megatrends

The asset classes in the real estate industry have become fragmented in recent years. Some of the most prevalent recent trends include the following:
In the office sector, COVID-19 has clearly had a huge impact. We therefore see a strong shift to flexible offices in prime locations close to public transport, so that employers can attract employees by the liveliness, attractiveness and easy accessibility of the working environment they can offer. Offices on the outskirts of the city or other B-locations see greater difficulty in being attractive to employees;
In the residential sector, the analysis varies very much throughout the jurisdictions. In general, across Europe we still see a high demand for new and attractive apartments and a lack of supply – which leads to the typical market situation of high prices. The States are tempted to influence the market wherever they can to protect tenants, ideally by price control;
With regard to hotels, obviously the travel restrictions during COVID-19 have led to a cash shortage for many players. In the long run, however, hotels will be as successful as they have ever been – and with the increase of appetite to travel in many Asian populations, a global increase of tourism is expected in the long run;
E-commerce has driven the relevance of logistical assets for years and has led to considerable yield compression. In recent months, it appears that this trend has come to a stop, and it remains to be seen what impact this may have on prices;
Life science assets, i.e. assets used for laboratories, medical supply or other healthcare institutions, are a small but attractive asset class. All in all, our societies will need more of these users over time – and so investments in this asset class promise to offer a long-term and stable demand of users. 

Meanwhile, ESG (Environment, Social and Governance) is clearly the main megatrend of the industry, which will last much longer than a number of other challenges we currently face. Due diligence on environmental and social aspects of a real estate asset has become key to many players in order to make investments eligible for funds labelled green. EU and national legislation on compliance with various sustainability aspects are ample.

Furthermore, in recent months, pan-European real estate portfolios have been seen in the asset class of logistical assets. These portfolios often cover a handful of jurisdictions with regard to the assets and are frequently held by corporate wrappers domiciled in Luxembourg or the Netherlands. This requires a seamless service, split up between various jurisdictions. Our own Freshfields network, and our StrongerTogether network, have proven to be efficient and resilient in these situations. Most recently, debt financing for such investments has become a challenge because the lending market has been difficult since March 2022.

For the real estate industry, the flood of ESG-related regulation is, without doubt, the main driver for new real estate-related regulations. 

The Importance of Networking

Freshfields is very active in the European real estate industry, particularly in industry events such as the Berlin hotel conference, the MIPIM and the Expo Real as well as many other industry fairs, where we are present, give presentations, arrange dinners, and the like. 

Many members of our European real estate group are very active in legal journals and publications. For years, we have aimed to harmonise trends and best practices in the real estate market in various jurisdictions across Europe. The focus of legal publications is, however, still jurisdiction-specific.

Opportunities and Deterrents for Investors

As mentioned above, the EU regulation on ESG will have a huge impact on real estate investments going forward. It will direct streams of money to “green” assets, and “brown” assets will soon be “stranded investments” – difficult to handle. 

Moreover, the war in Ukraine, combined with the continued COVID-19 crisis, have led to recession talks around Europe, as well as inflation and a steep increase in interest rates.

These factors have manifold impacts on investment into real estate. For example, the high inflation rate has led to an increased demand for real values; whereas, the increased interest rates have made debt financing for real estate investments much more challenging, placing pressure on prices.

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