BNP Paribas REIM: European real estate in recovery mode

The European real estate market is entering a recovery cycle and offers new investment opportunities, according to The Lighthouse H2 2024, BNP Paribas REIM’s European property market outlook, that has just been published.

Laurent Ternisien, Deputy Head, BNPP Paribas REIM

“Real estate should see a gradual recovery in 2024,” said Laurent Ternisien, deputy head, BNP Paribas REIM. “The economic upturn, the decrease of inflation and interest cuts are positive signs for the real estate industry. As we are slowly approaching a turning point, investors might benefit from new opportunities and will adopt new behaviours, such as shifting to a more diversified portfolio.” 

The first quarter of 2024 showed good signs of an economic recovery being underway and the further easing of financial conditions in the coming quarters which should support the recovery of real estate markets.

After spending the last 18 months in wait-and-see mode, real estate funds with cash to invest in European strategies can start to deploy their capital as the market enters a new cycle, said Ternisien. Residential continues to be the top target of investors in Europe, closely followed by industrial and logistics, offices and the retail sector.
The report highlights six key trends for real estate investment: first, 2024 is “a transitional year that could produce a good vintage of real estate investments, but a small vintage considering the low amounts of capital raised and fewer assets available to buy.”

Second, fundamentals make all the difference because they will “define the timing and pace of the recovery.” Logistics and hotels should lead in 2024, and prime office markets should perform well again in 2025. In terms of location, the most mature and liquid markets should lead the recovery. The UK, Netherlands, Germany, and France should attract most of the available capital from investors as repricing in these countries has been swift and extensive.

The third trend is that investors are increasing their focus on the social impact of real estate investment, so they can assess it alongside environmental factors. Investors and managers are working together to agree on ways to measure and manage social impact across all property types, as well as focusing more investment on areas such as affordable housing and social infrastructure. This year could be pivotal in implementing a full range of ESG investment criteria.

The fourth trend is that prime offices are making a comeback: the repricing that has already occurred leaves this part of the market looking attractive again, according to the report. Investors could adapt the offices to modern occupier requirements through refurbishments or convert them to mixed-use assets.

The fifth trend is that retail is starting to offer good returns relative to its risks after years of weaker performance, while the logistics market has been volatile but has a bias towards new stock with good lease covenants. Investors can therefore take their pick along the retailer supply chain, but there should be a rebalancing between retail and logistics investment after years of investors shifting away from the first and towards the second.

Finally, there will be more thematic investments into healthcare, hospitality and recreation. Healthcare provides stable returns, while hospitality and recreation have greater potential for enhanced returns. “There is definite strong demand for all,” the report states. “Trends that link health, tourism, and recreation, such as Europe’s ageing population and its spending habits, help form a consistent strategy that could differentiate a real estate portfolio from the wider market.”