Europe can expect improving growth but risks remain: C&W

Mild recession in the euro area and UK during the first half of 2023 will be followed by improving growth in the latter half of the year as macro headwinds begin to fade, according to Cushman & Wakefield in its latest European Macro Outlook.

However, although the near-term outlook looks brighter than expected six months ago the firm warns that some risks to the growth forecast remain.

“Any recession, even a mild one, poses a challenge for both occupiers and investors,” said Sukhdeep Dhillon, head of EMEA forecasting at Cushman & Wakefield. “Our research suggests that rate hikes and inflation are expected to weigh heavily on economic growth in 2023. While the intensely local nature of real estate means that some sectors and geographies will perform better than others, growth is nonetheless beginning to gather momentum if you know where to look.”

The research found that there will be variation at the city and asset level and many assets will outperform, in particular the prime end of the market that is largely undersupplied.

Although the capital markets had a positive start in 2022, economic uncertainty and confidence worsened during the year and transaction volumes declined in the second half. The fourth quarter was particularly slow.

“We still expect further movement in yields across all property sectors in the first part of 2023 as commercial real estate continues to adjust to the higher-risk, higher interest rate environment,” Dhillon said. “But we also know there is tremendous capital waiting on the sidelines ready to pounce. It’s a waiting game until the contours of this recession and interest rates become more visible. As the unknowns become knowns, the capital will be deployed aggressively.”