Or are they setting us up for the next rally?

The real estate market in Europe has been on a roller coaster ride over the past few decades. The financial crisis of 2008 had a significant impact on the real estate market, leading to a slump in property values and a tightening of lending conditions. In recent years, the market has been on the rise again, but now, in 2023, there are growing concerns about financing issues that could once again threaten the stability of the market.

Rising interest rates can significantly impact real estate developments, particularly in the commercial sector, affecting offices, warehouses, and logistics. These sectors are often dependent on long-term financing, and when interest rates rise, the cost of financing becomes more expensive. This can lead to an increase in the cost of borrowing, which can be a significant challenge for developers looking to invest in new projects or refinance existing ones. As the cost of financing increases, developers may become hesitant to take on new projects or expand their portfolios, leading to a slowdown in real estate development. In several European countries this is more and more visible. We see developers turning to forward-funding by investors and to alternative lenders, but they, too, are becoming more selective.

The impact of rising interest rates on real estate development can have far-reaching consequences for the greater economy. When developers are hesitant to invest in new projects, it can lead to a slowdown in construction activity, which can negatively affect job growth and economic activity. Additionally, as fewer properties are developed, it can lead to a shortage of available real estate. It remains to be seen if the lower supply will drive up rental and purchase prices. The housing market showed signs like these in various countries in recent years.