High inflation, rising interest rates, increased financing costs and credit hurdles have kept the entire real estate industry occupied since the summer of 2022. And these challenges will continue to concern us for some time. As a result, many market players remain cautious and are waiting to see how the interest rate environment develops. Within a period of one year, the European Central Bank (ECB) has raised the key interest rate eight times in a row, to the current level of 4.0 percent. With far-reaching effects: transaction activity in the property market has almost come to a standstill in recent months and there have been corrections to multipliers on the market. Due to the ongoing inertia as far as transactions are concerned, however, pricing is not yet complete, and investors are planning their re-entry into the market cautiously. At present, the drop in prices is still being cushioned by the robust rental market and inflation-driven rent increases, especially in the case of commercial properties, where indexed leases are common.

It will take some time for the market to largely stabilise. Supply and demand will slowly converge again. We nevertheless expect a slight increase in real estate transactions as early as the second half of 2023. As soon as there is more clarity about the interest rate level, which would make planning easier, the phase of finding new price levels on the market will accelerate. The fundamental demand for real estate as an investment nonetheless continues, with institutional investors still seeing property as an essential part of their investment strategy. The function of property as protection against inflation plays a major role. It is often overlooked that the real interest rate of fixed-income securities or cash investments after deduction of inflation is still very much in negative territory.

Even in these changed market conditions, we were able to close transactions successfully. The sale of the Geoscience headquarters in Australia is an example. At 363.5 million Australian dollars, this was the biggest transaction in Canberra's history. We achieved a transaction volume of around 1.7 billion euros across all use classes in 2022, on a par with the previous year. We had initiated the property sales worth around 1.1 billion euros at an early stage in order to take advantage of an attractive price level. Our purchases of around 600 million euros were made at adjusted prices for the most part.

Rising interest rates are undoubtedly putting a strain on property valuations and prices. However, we expect greater differentiation: modern, ESG-compliant commercial properties in prime locations are likely to maintain their price levels to a large extent. In the case of office properties, the price correction will be greater for those that are located further away from city centres and cannot meet the changed requirements in terms of fittings, quality and energy efficiency. This is because in this segment, a further distinction can be made between prime space in central locations and poor-quality properties as well as offices away from the city centre. Attractive office space in a good location is still important to attract and retain skilled workers, and to create an atmosphere in which employees can be creative and work productively in a team. Apart from that, high-quality office space helps to achieve the company's ecological targets and reduce energy consumption. In the residential sector, the greatest price reductions are expected for older properties in need of major renovation.

Despite the strained market environment, real estate investments can certainly be worthwhile. We still see opportunities in office properties. As mentioned, however, success here cannot be taken for granted. It is important to consider the changing needs of users, with a focus on modern and sustainable buildings in established central locations.

We see additional investment opportunities, for example, in the residential property market in Ireland and in the hotel segment. In Ireland, we currently manage assets worth around 615 million euros, and we intend to further expand our activities there. We will open a branch in the country in the near future and we aim to launch an investment fund with a focus on Irish residential real estate. In addition to conventional residential properties, investments in student accommodation, senior citizen homes and social housing are planned.

The hotel segment also offers attractive investment opportunities, not only in tourist-focused city hotels, but also in holiday regions such as the Baltic Sea coast or in the mountains. This is because people are again travelling within a radius that can be reached by car or train. After the restrictions during the pandemic, there is a lot of catching up to do and holiday demand is set to continue. This positive trend is supported by the figures for overnight stays reported by German accommodation providers. In 2022, these totalled 450.8 million, 45.3 percent above the previous year's level, according to the Federal Statistical Office. In the first few months of 2023, the number of overnight stays also increased significantly compared to the prior year. In this segment, we are likewise planning a new investment fund based on tourist hotels, and we are already in talks with new chains in the leisure segment.

Environmental, social and corporate governance (ESG) factors are also playing an increasing role in the future viability and stable value of real estate, not only for investors, but also for users. In addition, the sustainable transformation of buildings plays a key role in achieving the EU's climate targets. This alone adds to the pressure to act, as there is still a lot of catch-up potential in the decarbonisation of real estate. By means of energy audits, we have already prepared a detailed analysis for almost all of our properties, enabling us to derive specific measures at property level. These include, for example, the use of Artificial Intelligence (AI) based investment management and standardised green lease clauses in all new leases. To do this, we have introduced a central platform for recording and assessing all ESG-related consumption data. Another step towards actively decarbonising the properties and achieving a climate-neutral portfolio by 2045 is expansion of the partnership with the green technology company Recogizer. In addition, we are involved in the Social Impact Initiative of the Institute for Corporate Governance in the Real Estate Industry (ICG) to define measurement criteria for the social component, i.e. the ‘S’ in ESG. There is still a lot of potential in this, as the focus is on the ‘E’ at the moment.

It should be remembered that active asset management plays a crucial role, especially in times of crisis, as it helps to keep occupancy rates high and minimise potential vacancies. It helps to focus on strategic management of real estate, enabling potential risks and challenges to be identified and managed at an early stage. Asset management expertise also provides effective guidance for local property managers and facilitates collaboration to maximise the profitability of each property. Much will still depend on the creditworthiness and optimum mix of tenants. In these ways, active asset management can contribute significantly to the stable performance of the entire property portfolio and to optimising long-term returns. There is no doubt that the demands on asset management will continue to rise. Professional asset management is also helpful for ESG compliance in the portfolio, for example when arranging green leases, obtaining and analysing data, and making decisions to modernise a property.

Even challenging market phases, such as the one we are still in, present opportunities for real estate investors. To seize these opportunities, the market should be carefully explored. There are a lot of indications that it will gradually regain its momentum after the revaluation phase, possibly as early as later in 2023. It is important to be open to new solutions in order to identify and use existing potential in good time. We also do this to be actively involved in shaping developments on the market, to react rapidly to changes in an evolving environment, and to think long-term into the future for our clients and for our company.