Real estate market research: Forecasts for each sector in Europe to 2024.
We look at the assets that will attract the most attention in Europe and Spain in 2024, especially in the residential real estate market. The European real estate market is going through a challenging period due to rising interest rates, which has dampened real estate investment (hitting ten-year lows) and asset prices, although earnings remain strong. BNP Paribas RE has prepared its 2024 forecast for the European real estate market, analyzing which assets in Europe and Spain will attract attention in 2024, focusing on the residential real estate market.
The housing market will decline in 2023.According to analysts at BNP Paribas RE, due to the macroeconomic situation, the recovery of the real estate market''may not start until 2024, when investors adopt new strategies given a more stable macro-financial environment. European investment is now at its lowest level in a decade, totaling €182.6bn in H1 2023, down 57% from H1 2022. Of the top five markets, Spain ranks fourth with €3.8bn (-41%), behind the UK with €21.3bn (-52% year-on-year), Germany with €9.8bn (-68%) and France with €7.8bn (-42%). Italy was the lowest with €2.1bn (-62%). While the decline in investment seems more precipitous than during the 2008 financial crisis (-71%), it is also likely to be overall smaller with a decline of 42% by the end of 2023.
The value of European real estate in 2023.This'The 'trend is based on stagnant real estate prices rather than a lack of liquidity, as was the case in 2008. The market dynamics are also different from previous major downturns in many respects, as both sellers and buyers are withdrawn from the market. First, many buyers are reluctant to be responsible for existing income when financing costs are rising. They are also well aware that there are fewer options in the market compared to 2022: in the modern office, luxury and high-performance retail, and logistics segments. They share this view with sellers, who have little incentive to sell good properties at lower prices as long as occupancy remains stable (albeit selective). Fewer owners are finding it harder to get loans than in 2008, which''makes it easier to adopt a wait-and-see attitude.
Returns in the real estate sector in 2023According to analysts at BNP Paribas RE, we are in the final phase of the slowdown, mainly for the prime segment; 2024 looks set to be the year of the start of a broader recovery. Currently, average first-class returns in 16 major European markets stand at 3.9% for retail and 4.4% for logistics: these values are five and 90 basis points higher than in the same period last year, respectively. The average prime return is 4.3% (+110 basis points) for offices. According to research, returns are expected to continue to rise through 2023 and stabilize in 2024. The market will then revive selectively by asset type and''geographies, led by countries where growth has been sharpest. According to BNP Paribas RE, logistics (already highly overvalued) and residential will lead the market, supported by the prospect of strong rental growth.
The rental market in Europe
The outlook for rental growth remains the focus for investment decisions in the near future. Indeed, rent growth is only expected in sectors that have performed well over the past five years, such as offices and logistics, while retail may start to recover and growth in the residential real estate segment should be robust.
The residential market forecast for 2024
Tightening financial conditions and uncertainty''relative to the end of the interest rate cycle led to a 62% decline in European residential investment in H1 2023 compared to H1 2022 and 55% below the five-year average. Spain was the only country to record an increase in investment over the period. In the Nordic countries, Germany and France, investor activity declined more than the European average, while in the Netherlands and the UK the situation seems more resilient. Rising mortgage rates and government bond yields are complicating the investment market, reducing the risk premium and risk-adjusted returns from real estate. Prices must adjust to the real economic and credit environment to resume.''Refinancing is a major risk that may force some investors to sell short due to price adjustments and thus increasing leverage to value ratios.
According to analysts at BNP Paribas RE, due to the macroeconomic situation, the recovery of the real estate market''may not start until 2024, when investors adopt new strategies given a more stable macro-financial environment. European investment is now at its lowest level in a decade, totaling €182.6bn in H1 2023, down 57% from H1 2022. Of the top five markets, Spain ranks fourth with €3.8bn (-41%), behind the UK with €21.3bn (-52% year-on-year), Germany with €9.8bn (-68%) and France with €7.8bn (-42%). Italy was the lowest with €2.1bn (-62%). While the decline in investment seems more precipitous than during the 2008 financial crisis (-71%), it is also likely to be overall smaller with a decline of 42% by the end of 2023.
The value of European real estate in 2023.This'The 'trend is based on stagnant real estate prices rather than a lack of liquidity, as was the case in 2008. The market dynamics are also different from previous major downturns in many respects, as both sellers and buyers are withdrawn from the market. First, many buyers are reluctant to be responsible for existing income when financing costs are rising. They are also well aware that there are fewer options in the market compared to 2022: in the modern office, luxury and high-performance retail, and logistics segments. They share this view with sellers, who have little incentive to sell good properties at lower prices as long as occupancy remains stable (albeit selective). Fewer owners are finding it harder to get loans than in 2008, which''makes it easier to adopt a wait-and-see attitude.
Returns in the real estate sector in 2023According to analysts at BNP Paribas RE, we are in the final phase of the slowdown, mainly for the prime segment; 2024 looks set to be the year of the start of a broader recovery. Currently, average first-class returns in 16 major European markets stand at 3.9% for retail and 4.4% for logistics: these values are five and 90 basis points higher than in the same period last year, respectively. The average prime return is 4.3% (+110 basis points) for offices. According to research, returns are expected to continue to rise through 2023 and stabilize in 2024. The market will then revive selectively by asset type and''geographies, led by countries where growth has been sharpest. According to BNP Paribas RE, logistics (already highly overvalued) and residential will lead the market, supported by the prospect of strong rental growth.
The rental market in Europe
The outlook for rental growth remains the focus for investment decisions in the near future. Indeed, rent growth is only expected in sectors that have performed well over the past five years, such as offices and logistics, while retail may start to recover and growth in the residential real estate segment should be robust.
The residential market forecast for 2024
Tightening financial conditions and uncertainty''relative to the end of the interest rate cycle led to a 62% decline in European residential investment in H1 2023 compared to H1 2022 and 55% below the five-year average. Spain was the only country to record an increase in investment over the period. In the Nordic countries, Germany and France, investor activity declined more than the European average, while in the Netherlands and the UK the situation seems more resilient. Rising mortgage rates and government bond yields are complicating the investment market, reducing the risk premium and risk-adjusted returns from real estate. Prices must adjust to the real economic and credit environment to resume.''Refinancing is a major risk that may force some investors to sell short due to price adjustments and thus increasing leverage to value ratios.
This'The 'trend is based on stagnant real estate prices rather than a lack of liquidity, as was the case in 2008. The market dynamics are also different from previous major downturns in many respects, as both sellers and buyers are withdrawn from the market. First, many buyers are reluctant to be responsible for existing income when financing costs are rising. They are also well aware that there are fewer options in the market compared to 2022: in the modern office, luxury and high-performance retail, and logistics segments. They share this view with sellers, who have little incentive to sell good properties at lower prices as long as occupancy remains stable (albeit selective). Fewer owners are finding it harder to get loans than in 2008, which''makes it easier to adopt a wait-and-see attitude.
Returns in the real estate sector in 2023According to analysts at BNP Paribas RE, we are in the final phase of the slowdown, mainly for the prime segment; 2024 looks set to be the year of the start of a broader recovery. Currently, average first-class returns in 16 major European markets stand at 3.9% for retail and 4.4% for logistics: these values are five and 90 basis points higher than in the same period last year, respectively. The average prime return is 4.3% (+110 basis points) for offices. According to research, returns are expected to continue to rise through 2023 and stabilize in 2024. The market will then revive selectively by asset type and''geographies, led by countries where growth has been sharpest. According to BNP Paribas RE, logistics (already highly overvalued) and residential will lead the market, supported by the prospect of strong rental growth.
The rental market in Europe
The outlook for rental growth remains the focus for investment decisions in the near future. Indeed, rent growth is only expected in sectors that have performed well over the past five years, such as offices and logistics, while retail may start to recover and growth in the residential real estate segment should be robust.
The residential market forecast for 2024
Tightening financial conditions and uncertainty''relative to the end of the interest rate cycle led to a 62% decline in European residential investment in H1 2023 compared to H1 2022 and 55% below the five-year average. Spain was the only country to record an increase in investment over the period. In the Nordic countries, Germany and France, investor activity declined more than the European average, while in the Netherlands and the UK the situation seems more resilient. Rising mortgage rates and government bond yields are complicating the investment market, reducing the risk premium and risk-adjusted returns from real estate. Prices must adjust to the real economic and credit environment to resume.''Refinancing is a major risk that may force some investors to sell short due to price adjustments and thus increasing leverage to value ratios.
According to analysts at BNP Paribas RE, we are in the final phase of the slowdown, mainly for the prime segment; 2024 looks set to be the year of the start of a broader recovery. Currently, average first-class returns in 16 major European markets stand at 3.9% for retail and 4.4% for logistics: these values are five and 90 basis points higher than in the same period last year, respectively. The average prime return is 4.3% (+110 basis points) for offices. According to research, returns are expected to continue to rise through 2023 and stabilize in 2024. The market will then revive selectively by asset type and''geographies, led by countries where growth has been sharpest. According to BNP Paribas RE, logistics (already highly overvalued) and residential will lead the market, supported by the prospect of strong rental growth.
The rental market in Europe
The outlook for rental growth remains the focus for investment decisions in the near future. Indeed, rent growth is only expected in sectors that have performed well over the past five years, such as offices and logistics, while retail may start to recover and growth in the residential real estate segment should be robust.
The residential market forecast for 2024
Tightening financial conditions and uncertainty''relative to the end of the interest rate cycle led to a 62% decline in European residential investment in H1 2023 compared to H1 2022 and 55% below the five-year average. Spain was the only country to record an increase in investment over the period. In the Nordic countries, Germany and France, investor activity declined more than the European average, while in the Netherlands and the UK the situation seems more resilient. Rising mortgage rates and government bond yields are complicating the investment market, reducing the risk premium and risk-adjusted returns from real estate. Prices must adjust to the real economic and credit environment to resume.''Refinancing is a major risk that may force some investors to sell short due to price adjustments and thus increasing leverage to value ratios.
Housing prices in Europe
The volume of transactions in the real estate market in Europe in the first quarter of 2023 decreased by 10.7% from''the same period a year earlier. House prices on the continent have declined for two consecutive quarters, namely by -0.7% after -1.4% in the fourth quarter of 2022. Over the past six months, house prices have fallen by -2.1% in Europe. The hardest hit countries are Germany (-7.8%), Luxembourg (-5.6%), Finland (-5.2%), Sweden (-4.4%) and Denmark (-4.0%), the same countries that have shown larger declines than the maximum over the past two years.
Housing prices are falling in Europe... But not everywhere...
In terms of cities, according to our affordability report, all markets (exceptRome and Brussels) are significantly overvalued. As a result, house prices are falling in 20 out of 28 cities, having peaked in the last two years. House prices fell by more than 10% in Frankfurt (-16.2%), Copenhagen (-12.7%), Amsterdam (-12.7%),''year: the highest average annual growth since 2010. The imbalance between supply and demand in the rental housing market is significant due to the unpredictability of housing legislation, which has contributed to a sharp reduction in rental supply, for example in Berlin, Barcelona and Valencia. In addition, the restriction of rent increases to 2-3% to prevent indexation to inflation is forcing landlords to compensate for the loss of income in new leases. Tenant demand has also shifted towards more efficient housing to avoid rising energy bills. The coming challenge may be to ban the letting of energy-unreliable housing, as has already been done in France and the UK. Such regulation would significantly''has reduced the affordability of rental housing.
The buy-to-rent ratio shows that in most markets, renting is the best option for families who need more space. In Stockholm, London, Munich, Hamburg, Paris, Frankfurt, Lyon, Copenhagen, Prague and Oslo, renting offers twice as much space as a family can afford to buy. Since the pandemic began, renting is cheaper than buying in several southern European markets, including Barcelona, Madrid, Milan, Lisbon, Rome and Seville.
How much will rents rise in Europe?
Rents are expected to continue to rise, influenced by inflation, a recovery in household disposable income and a shortage of supply relative to rental demand.''Southern European rental housing markets should continue to develop and see strong rental growth due to an improving labor market, expected income growth and high rental market depth potential.
Other Real Estate Market Forecasts for 2024
Offices
The greatest uncertainty in the real estate market is being felt in this particular segment, which is going through profound changes from multiple angles: price adjustments due to the largest increase in financing costs in decades, operating patterns that continue to indicate decreasing demand for space, and a regulatory environment that will continue to increase obsolescence. These challenges have put the segment in a period that can''characterize it as "suspended animation": alive but with limited activity. Price stagnation will be resolved in the first half of 2024, when monetary policy reaches its terminal rates in the current cycle. On the occupancy side, demand remains concentrated in prime locations, continuing the momentum established after the pandemic, reflecting tenants' desire to downsize and occupy buildings that meet environmental standards.
Logistics
2022 was the largest correction in the logistics market due to rising financing costs. In addition, the logistics recovery this year has been much faster than other real estate segments. A sustained and broad-based recovery is expected for the remainder of the year.''for investment.
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