ECB Interest Rate Decision: First Rate Cut in Eight Years

On June 6, the Governing Council of the European Central Bank (ECB) decided on the first rate cut in eight years. The ECB's three key interest rates were each reduced by 25 basis points. The interest rate for main refinancing operations is now 4.25 percent, the rate for marginal lending facility is 4.5 percent, and the deposit facility rate is 3.75 percent. The basis for the decision was the assessment of inflation prospects and dynamics, leading to the decision to ease monetary tightening after nine months of observation. Since September, inflation has fallen by more than 2.5 percentage points and the outlook is also positive. Despite raised inflation expectations, the consulted experts expect an overall inflation rate of 2.5 percent for the current year. For 2025, inflation is expected to be 2.2 percent, and in 2026, inflation is projected to fall below the medium-term inflation target of 2.0 percent to 1.9 percent. Experts also anticipate slow economic growth in the Eurozone: 0.9 percent growth in 2024, 1.4 percent in 2025, and 1.6 percent in 2025.

Despite the improved outlook, the ECB Governing Council emphasizes keeping key interest rates restrictive until the two percent target is reached. As domestic price pressures remain high due to strong wage growth, inflation is expected to remain above target well into next year.

ESG Data Provider Deepki Survey Shows: Every Second Asset Manager Considers Parts of Their Portfolio 'Stranded'

The results of the survey by ESG data provider Deepki, conducted among more than 250 European real estate asset managers with assets under management of around 226 billion euros and published on June 19, show that significant parts of real estate portfolios are exposed to ESG risks. A total of 94 percent of all respondents are exposed to a high risk of financial losses from “stranded assets”. Stranded assets refer to properties whose poor sustainability is no longer viable in the long term, resulting in value losses.

More than half indicated that more than 30 percent of their managed assets are potentially stranded, having lost value due to a lack of energy efficiency. Additionally, half of the respondents indicated that another 20 to 40 percent of their assets are at risk of becoming stranded assets in the next three years.

As a result, the majority of respondents agreed that reducing this risk is a management priority. While 15 percent rated this priority as extremely high in their management teams, 59 percent described it as a high priority, and 26 percent as a medium priority. Regarding asset types, 29 percent indicated that retail properties have the highest risk, followed by 26 percent who identified industrial properties. Offices were seen as the highest risk by 13 percent, healthcare properties by 10 percent, and residential properties by 9 percent of respondents.

IW Summer Survey: Improved Real Estate Sentiment Index

In the summer survey 2024 of the ZIA-IW Real Estate Sentiment Index (ISI) on June 21, the Institute of the German Economy (IW), together with the German Property Federation (ZIA), observed an improvement in sentiment in the German real estate market. Compared to the previous quarter, the business situation assessment rose from 5.0 points in the index to 15.6 points. The expectations of the surveyed real estate companies also increased from -2.9 points to 11.5 points.

The real estate climate index rose to 13.6 points, which, according to IW, is the best value since the start of the Ukraine conflict and interest rate hikes in 2022. The reasons for the improved climate are attributed to moderately falling construction interest rates, stable construction and energy costs, and a moderate return in demand. Although the situation remains challenging, there is hope for an end to the two-year weak phase.

In the segments of retail properties and housing, the situation has each improved significantly, with only the project development segment falling by 1.3 points in the index. Nevertheless, expectations have also improved in this segment. The special question in this survey concerned political measures to improve the economic situation. For nearly 59 percent of the surveyed real estate companies, reducing bureaucracy is the most important measure, followed by avoiding new and cost-increasing regulations at just under 54 percent. Higher digitization of administration is desired by nearly 40 percent of respondents, and lower tax burdens by nearly 25 percent.