The commercial real estate market is no longer in crisis. Each year, since the crisis of 2008, the market has held its breath for the announcement of real estate statistics. Were they good this year or do they augur a return to a situation of crisis? Michael Chidiac, Managing Director of RealCorp, is reassuringly positive: “2013 was a good year, notably for the office real estate market.”
“Our company has been in business since 2001 and our activities, in the domains of real estate consultancy, brokerage, property management and project management, have given us a privileged position from which to analyse the market,” he explains.
A few months from the end of the year, the overall economic outlook does not seem as positive as that of real estate. Actually, 2013 has been a fairly grim period, due to loss of confidence by entrepreneurs and consumers, the increase in unemployment and budgetary austerity measures in the Grand-Duchy. Despite this, demand for real estate has not failed and major projects have proven that investors are still active in the Luxembourg market.
“In recent times, large groups have confirmed their expansion and their development, via their property investments,” explains Mr Chidiac. For example, developers have begun works for large audit firms.
Amongst the profiles of investors in the Grand-Duchy, Luxembourgian, German and Belgian investors are in the majority and invest principally in “cores”, that is, in ideally-located properties, in Luxembourg City, for example. This geographic situation also permits them to obtain bank finance more easily.
“Unfortunately, today, there is not enough of this type of property on offer,” continues Michael Chidiac. However, one reassuring point is that “Investors have recently begun to reappear, with some of them coming back to the market with an opportunistic strategy”. Besides the geographic situation, other criteria must be taken into account to enable a property to survive the crisis. This is true even if the economic climate begins to improve in 2014 through a renewal of confidence and the recovery of the Eurozone, because uncertainty will remain.
According to Michael Chidiac, “it is difficult to estimate the appreciation of value of a property in the actual context. One must first study the investment with a view to making it profitable at least during the period that the investor possesses it.” Among the key criteria to consider for a future real estate investment are not only, obviously, the location, but also the construction techniques and the affordances of the building.
“Today, new buildings compete to display ingenious responses to green standards, of which there are many for office properties. For example, certain buildings use wind turbine technologies, solar panels, or green facades, in order to optimise the consumption of energy.”
“Besides strategic and operational management, which includes the negotiation of leases, their length and the choice of tenants, one must also think about possibilities for future improvements, the control of expenses and the structuring of finance so that a building can resist any crisis, not forgetting that it is important to choose an operational partner with the necessary skills to help investors manage their assets,” he adds.
In sum, market players can take a reassuring stance, on condition that each property investment is carefully considered and takes into account the realities of the market. “Real estate has survived the crisis since 2008 and has adapted to the new circumstances. However, what is different now is that we are no longer in a speculative market. Projects are born in response to definite demands and evolve with those demands, ” underlines Michael Chidiac.
“Over the years, business zones have emerged, thanks to the arrival of international companies, which have permitted the development of real estate areas that offer spaces for offices, shops and diverse infrastructure projects… Today, a real estate investment is often associated with the creation of an entire suburb, mixing commercial and residential real estate, as is the case with the Ban de Gasperich, the Place de l’Etoile, or the Royal Hamilius. This type of project is strongly supported by the Luxembourg authorities, as these are synonymous with economic development,” he continues.
In reponse to the question of whether now is a good time for investment, Michael Chidiac concludes, “In my opinion, it is the right time to start investing again. And investors know it. They only need to develop a certain knowledge of the market, because some geographical zones are more propitious than others.”
Interview by Coralie Delferier, Corporate Communications Manager, RealCorp Luxembourg, with the gracious collaboration of Michael Chidiac, Managing Director, RealCorp Luxembourg.
Released in the newspaper Agefi.
English translation by Tia Azulay, Web Consultant, RealCorp Luxembourg.