NCG
Sep 30, 2024
European Real Estate Market Outlook: Q3 2024 – Navigating Recovery and Opportunity
Executive Summary:
The European real estate market entered a phase of recovery in Q3 2024, supported by stabilizing valuations, lower inflation, and a series of interest rate cuts by the European Central Bank (ECB). Investment activity has picked up, with several regions and sectors demonstrating resilience and renewed momentum. However, the market remains nuanced, with ongoing challenges in specific asset classes and geographies.
Key Market Highlights:
European real estate investment is forecast to reach approximately €37.1 billion in Q3 2024, a 15% increase compared to the same period last year. Year-to-date, total investment volumes have reached €113.3 billion, up 5% over the previous year. Southern Europe and Central and Eastern Europe (CEE) have shown particular resilience, with expected year-over-year increases of 11% and 16%, respectively. The UK leads the core markets with a 26% year-on-year growth in investment volumes.
The ECB’s deposit facility rate was reduced to 3.5%—its lowest since July 2023—with further cuts anticipated into 2025. This has triggered a drop in mortgage rates and a 29% surge in online property searches, signaling renewed buyer interest and improving financing conditions.
Cross-border investment activity saw a 22% year-on-year increase in Q3 2024, with private capital accounting for 27% of total investment volumes. Logistics and residential assets continue to attract strong interest from global investors.
European commercial property values rose by 0.63% in Q3 2024, marking the first positive movement in two years and ending a prolonged period of value declines. Retail led the recovery with a 1.26% quarterly gain, while office values rebounded by 0.5% but remain fragmented across regions. The UK office sector, however, saw values fall by 2.6%.
Sector and Regional Trends:
The office sector remains mixed. While take-up increased marginally, demand is still below pre-pandemic averages due to the rise of flexible working. Vacancy rates edged up to 8.4% across Europe, but prime office rents are rising in key cities like Paris, London, and Berlin. There is strong competition for centrally located, high-quality office space, while secondary assets face value pressure and higher capital expenditure requirements.
Logistics assets are expected to see yield compression and continued investor demand, while retail parks remain stable. Shopping centre yields may rise slightly, but retail as a whole performed well in Q3 2024.
The luxury residential market in Europe is growing at a slower pace than global averages, but cities such as Madrid, Lisbon, and Dublin are outperforming with price growth above 4.5%.
Macroeconomic and Policy Environment:
The Eurozone is expected to maintain moderate growth, with household consumption benefiting from positive real earnings. Inflation has fallen below the ECB’s 2% target (now at 1.8%), though services inflation remains sticky due to robust wage growth. The ECB is expected to continue its easing cycle, supporting further market normalization into 2025.
Yields are forecast to remain stable over the next six months, with compression likely for logistics and, to a lesser extent, retail parks. From March 2025, prime yield hardening may spread across asset classes.
Outlook:
The combination of monetary easing, stabilizing values, and improving investor sentiment is expected to sustain momentum into late 2024 and 2025. All-property total returns are forecast at 5.9% over the year to June 2025.
Persistent inflation in services, regional disparities (e.g., UK offices), and global macroeconomic headwinds could temper the pace of recovery. However, logistics, residential, and select Southern European cities offer attractive opportunities for investors.
Norden Capital Group will continue to monitor these trends and provide timely insights as the European real estate market evolves.
Disclaimer:
This analysis reflects the opinions of our firm and is not intended as investment advice. We focus solely on providing insights based on current market conditions and do not manage assets or offer investment advice. Investors should conduct their own research and consider their financial situation before making any investment decisions.
Sources: Savills, CBRE, Altus Group, BNP Paribas Real Estate, Aberdeen Investments, IQI Global, BE News, ERED