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European Real Estate Market Overview

Another Year Of Subdued Growth

Last year was characterised by weak economic growth across much of Europe, with households and businesses feeling the strain from high inflation rates and a significant cycle of interest rate hikes. This environment led to a decrease in property investment activity for similar reasons

Looking ahead to 2024, it is anticipated to the second half of another year of subdued growth, albeit slightly stronger than the last. However, risks remain predominantly negative, with concerns largely focusing on geopolitical tensions and persistent core inflation. It appears that policy interest rates have reached their peak, and inflation is expected to continue its decline throughout the year. Long-term interest rates began to fall last October, with further modest reductions projected for the rest 2024.

In this context, the outlook for property investment is improving. Property values are expected to reach their lowest point in 2024, and as these values stabilise, there should be a gradual alignment between the price expectations of buyers and sellers. Investment volumes are forecast to increase by approximately 10% in comparison to 2023.

Investment volumes are forecast to increase by approximately 10% in comparison to 2023

Occupier markets are likely to display a varied landscape, with an increasing divide between top-quality assets and others. Office leasing is anticipated to experience a modest uptick, though progress will be gradual. Logistics take-up is expected to continue its decline from previous record highs, while improved consumer fundamentals in the retail sector should lead to increased footfall and sales. The residential sector will persist in facing structural undersupply issues and robust occupier demand. Similar demand-supply imbalances are expected in other sectors such as hotels and data centres.

Sustainability will increasingly influence real estate decisions across all sectors. Market participants will intensify their efforts to align their Environmental, Social, and Governance (ESG) strategies, and the drive for enhanced data on the costs and benefits of sustainability initiatives is set to accelerate.

KEY TAKEAWAYS

The European real estate market is poised to see prime capital values stabilise during 2024. However, a robust overall rebound in values is unlikely as long as the cost of debt remains high, which is anticipated for much of 2024. The capital available for investment in European real estate continues to be substantial, with the majority directed towards value-add and opportunistic strategies. This underlines the challenges for the core market segment, as investors wait on the sidelines for potential tactical opportunities. Deal activity is expected to increase this year as capital values firm up and conditions in capital markets improve, providing more confidence in new price levels. Additionally, transaction opportunities may emerge due to maturing loans.

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