Recession in Europe before 2023 say 71% of RE leaders

Over 70% of real estate leaders believe Europe will move into recession before the end of 2022 according to Emerging Trends in Real Estate Europe 2023.

The survey of European real estate sector leaders’ expectations for the year ahead, conducted by the Urban Land Institute (ULI) and PwC UK, found that property business confidence and expectations of profitability have dropped to a low level which the report’s authors say reflects widespread industry concerns across an array of indicators for the business, political and real estate environments.

Emerging Trends in Real Estate Europe 2023, the 20th edition of the report, is based on the views of around 900 real estate leaders from across Europe. The report found 91% concerned about inflation, closely followed by interest rate movements (89%) and European economic growth (88%). Political uncertainty at the global, regional and national levels are of high concern as well.

However, only 13% see inflation being a problem in five years’ time, while interest rates (73%) and growth (76%) remain medium term concerns.

From a real estate business perspective, construction costs and availability of resources top the list, with 92% concerned about costs and 84% about resources in 2023. These issues are expected to remain for the longer term with 76% and 73% seeing respective cost and resource problems for the next three to five years.

Owing to this uncertainty, 71% of real estate leaders believed Europe would move into recession before the end of 2022, thus negatively affecting development activity, availability of finance and investment volumes followed by occupancy, rents and values.

While Germany, the UK and the Netherlands look unlikely to escape recession, France seems more insulated, largely because of its energy sources. Recession is likely before 2023 for 83% of respondents in Germany, 82% in the UK, 79% in the Netherlands and 68% in Spain. French (45%) respondents were more sanguine, ULI said.

Distress unlikely to reach GFC levels

Interviewee responses point to values dropping in 2023. The coming year could be a great buying opportunity for core and all-equity investors that are still under-allocated to real estate. The consensus is that distress is unlikely to reach anything like the proportions of the global financial crisis. This might prompt banks to push for sales more quickly, encouraged by the Bank of England’s slotting regulation and Basel III European banking rules. Such sales could crystallise price falls.

From the development perspective, interviews indicate that projects slated for 2023 might be pushed back into 2024 or shelved entirely. This lack of new development is seen by some as a positive for existing assets and their owners.

“Since we conducted the survey and interviews over the summer, which already highlighted deep concerns, the industry has become even more worried,” said ULI Europe CEO Lisette van Doorn. “But there is still a lot of capital available to invest and mostly not in a hurry, waiting for the right opportunities to arise. For the industry to weather the storm, stock selection is key, in addition to a strong ESG focus, operational skillset and customer focus.”