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May 15, 2024

Cromwell’s Macro Market Monitor – Q2 2024

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers softening of rate cut expectations and quiet investment markets.

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April 2, 2024

The Power of AI in real estate: a paradigm shift

The real estate industry, traditionally characterised by its cautious adoption of new technologies, is now at a pivotal juncture. The emergence of AI, with its open-ended and self-evolving nature, promises to fundamentally change the way we live, work and play.

This report looks at how AI is currently used across the industry, and how it promises to reshape real estate through an occupier and investment lens.

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February 14, 2024

Cromwell’s European Market Monitor – Q1 2024

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

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January 4, 2024

Biodiversity: a fundamental part of our natural capital

Consideration of the environmental impact of real estate is usually focussed on greenhouse gas emissions during construction and operations. However, another critical aspect is the impact of the built environment on biodiversity. In this briefing note we explore the connection between biodiversity and real estate. We explain why investors that align their strategies to accommodate new regulations will also enhance their asset financially, socially, and environmentally.

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November 7, 2023

Cromwell’s European Market Monitor – Q4 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

View the full report here.

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August 18, 2023

Cromwell’s European Market Monitor – Q3 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers tightening credit standards, bank liquidity and green financing.

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August 18, 2023

ESG and Investment Strategy: a virtuous relationship

Environmental, social and governance (ESG) is a high priority for real estate investors, but there is no agreed industry position on what ESG means in practice for investment strategy. In Cromwell’s latest analysis, Tom Duncan and the team review the ESG landscape and provide strategy-related advice on macro-sector allocations through asset selection and management to occupier profile.

View the full report here.

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August 3, 2023

Greenwashing: transparency is everything

Many companies have publicly declared their environmental, social and governance (ESG) strategies to formalise a commitment to net zero and align to the UN’s sustainable development goals. However, if these strategies are not backed up by solid, auditable data and acted upon in a meaningful way, then they are pointless. Making empty or misleading statements about the sustainability of a company’s products or services, whether intentional or not, is known as greenwashing.

Our latest briefing note looks closely at what greenwashing within real estate looks like in its many forms, and the steps businesses need to take to avoid significant reputational damage.

The full research briefing note can be found by clicking here.

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March 15, 2023

Timber buildings – Cost-competitive sustainable real estate

In 2022 we released our report on timber construction titled “Timber Buildings – Truly sustainable real estate”. This demonstrated the many benefits of construction using mass timber (short for massive timber) when compared to traditional steel and concrete.

To recap, the benefits of using mass timber include:

  • Energy efficiency: manufacturing mass timber materials uses significantly less energy than steel and concrete production;
  • Faster construction: prefabricated timber panels enable shorter construction timetables than building with steel and concrete thereby reducing construction-based emissions;
  • Less disruptive: fewer delivering trucks are needed resulting in less disruption to communities around building sites;
  • Resistant: mass timber is fire-resistant and avoids moisture damage when built correctly; and
  • Financially attractive: rising occupier demand for greener buildings led to a 9% rental premium for timber buildings.

This report seeks to look more closely at the amount of carbon reduction during the building development and lifecycle. It also explores how the cost implications of timber buildings compare to steel and concrete.

The full report can be found by clicking here.

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February 15, 2023

Polish appeal: Europe’s most dynamic country should be a focus for savvy investors

Poland’s performance prospects are compelling. In our view it is being unfairly discounted by investors due to its proximity to Ukraine. We also believe that it is set for sustained occupier demand growth due to the strength of long-term fundamentals related to economic growth and demographics. A combination of rising occupier demand increasing rental potential, a lack of space suitable for modern businesses and a flawed perception of risk creates a powerful impetus for savvy investors to seize the chance today to acquire good quality real estate and benefit from superior performance tomorrow.

In the first article of this series, we explore why Polish investment prospects are so compelling. In future articles we will examine the performance opportunities presented by individual real estate sectors.

Risk perception: Extreme caution towards Poland is misplaced

International investors have shunned Poland since the Ukraine invasion given its proximity to the conflict and its high associated risk perception. Polish real estate investment volumes in H2 2022 were 35% down on the five-year average according to RCA (figure 1). Polish prime yields have moved out between 50-90 bps over the last year and it remains one of the highest-yielding European markets (figure 2).

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Prime-yields-in-Poland

Logical reasoning implies that this heightened risk perception is misplaced. Indeed, far from being an inhibitor of future performance, proximity to Ukraine is likely to be an accelerator of it.

Our baseline assumption is there will not be a horizontal escalation of the Ukraine conflict in which Poland is invaded. Given Russia’s battlefield setbacks, their inability to retain territorial gains and the assertive, unified position of NATO and the EU towards Russian aggression, we believe such escalation is highly unlikely. If such an escalation did eventuate, we would all have far more to worry about than real estate values in any case. In the medium-term (the next five years), we also assume that the conflict reaches a settled state and active combat ends. Accepting that, let’s turn to the real estate fundamentals.

 

Economics and demographics: Dynamism in leading occupier demand indicators

According to Oxford Economics, Poland will benefit from some of the strongest economic growth in Europe over the next five years (figure 3). Because such growth is a leading indicator of occupier demand, this bodes well for real estate performance. However, we believe that even these bullish growth assumptions may be too pessimistic as they fail to account for the full impact of Poland’s post-war relationship with Ukraine.

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Poland has been a hub for shipping arms and aid to Ukraine over the last year. Post-war, it will be the conduit through which the reconstruction effort is funnelled. Given the damage Russia has inflicted – the reconstruction costs are estimated by the World Bank amount to €322 billion so far – that effort will be significant. There is talk of a new Marshall Plan, the American programme that turbo-charged Europe’s economic recovery after the second world war. Poland’s leading role in the reconstruction effort will be solidified by the international creditability it has gained by virtue of its resolute response to the invasion. This will translate into far greater foreign direct investment (FDI) from international capital once the risk perception declines.

Poland has been a haven for Ukrainian refugees, with 7.5 million fleeing across the border according to the European Investment Bank. Some 1.5 million are estimated to remain there today, many of whom are likely to settle permanently. The presence of so many additional people has caused some immediate tensions by exacerbating pressure on housing and social infrastructure. Short-term challenges aside, these immigrants will inject dynamism into Poland’s demographic profile by adding labour and population. The new arrivals tend to be younger and better educated than the average Pole. It will be an attractive destination for corporate occupiers seeking to tap that plentiful, affordable supply of skilled labour.

Current forecasts do not, in our view, fully account for the additional economic and demographic growth impetus associated with these factors which will directly translate into stronger real estate demand.

 

Conclusion: Unwarranted risk and solid fundamentals make Polish real estate an investment gem

In summary, we believe that the Ukraine-related risk of Polish real estate investment is over-estimated. We also consider that economic and demographic growth drivers will stimulate sustained occupier demand in the medium-term and long-term. Investors who access the market now can secure assets and development sites aligned to future demand and associated rental growth at higher yields than will be available once the Russian-Ukraine conflict settles. Exposure to capital and income growth potential will, if executed correctly, deliver out-performance. That is why we are so optimistic on Polish real estate.