Traditional standards for assessing property locations are undergoing a shift. As a recent discussion paper highlights, location quality can no longer be viewed as an unalterable characteristic. Instead, it is developing into a dynamic risk factor that plays a noticeably greater role in investment and occupier decisions.
Since the shift in interest rates began, clear differences between individual submarkets have come to light. In direct comparison with peripheral areas, central office locations are proving considerably more robust and resilient against changed market conditions.
Turnaround in interest rates accelerates submarket differentiation
Against the backdrop of higher financing costs and changed occupier requirements, location quality is returning to the centre of risk analysis. Peripheral locations, which were still able to record stable demand during phases of low capital market interest rates, are now subject to a more nuanced assessment.
At the same time, expectations regarding the functionality and accessibility of workplaces are rising. Central locations benefit from their established integration into the urban environment, which secures comparatively high value stability and demand for them even in the current market climate.
- —Central office locations maintain their resilience compared with peripheral locations
- —Outskirts and peripheral locations are under increased pressure due to changing occupier requirements
- —The assessment of location risks is shifting from a static to a dynamic perspective
The reassessment of location criteria illustrates that the previous classification of real estate locations needs to be readjusted. For investors and asset holders, the ability to analyse the dynamic risk factors of micro-locations accurately and incorporate them into long-term strategies will be crucial.
