BNP Paribas: the worst is over for Europe’s real estate market
Things can only get better, delegates heard at Real Asset Media’s Germany Investment briefing, which was hosted by Ashurst at their offices in Frankfurt yesterday.
“The good news is that the worst is over for the European real estate market,” said Inga Schwarz, head of research, BNP Paribas Real Estate Consult. “There’s more investment momentum and confidence is returning, so we expect an improvement in 2025.”
Investment volumes which had declined substantially, are now stabilising. In the first nine months of 2024, €108.8 billion was invested in CRE in Europe, an 8% increase compared to the same period in 2023, driven by all asset classes except offices.
So far investments this year have been driven by foreign capital, up by 12% on last year with a market share of 45% across Europe and a peak of 68% in Italy.
American capital has come back to the market, with a 48% increase compared to 2023, with a particular focus on Spain, the Netherlands and Italy. Middle Eastern and Asian capital is noticeably less active than in the past (-52% and 30% respectively), with most Asian investments focusing on Germany.
“Investors are more cautious on large deals and portfolio deals,” said Schwarz. “Only 6% of transactions have been over the €100 million mark, and these few have been mainly in the hotel sector. Office portfolio deals have disappeared.”
Transactions below the €20 million and the €40 million mark have been driving the market, but “as confidence returns we will see larger deals again, hopefully, because they make all the difference,” she said.
The drop in office investment has been “tremendous,” Schwarz said: for the first time ever the office sector has been on a par with logistics, with a €37 billion investment volume in the first nine months of the year.
This is due to the office sector doing badly rather than the logistics sector doing well, Schwartz said: “The logistics occupier market in Europe has been sluggish, rental growth has been slowing down and it has been the sector that has seen the fastest repricing, but there is still strong appetite from investors.”
Transactions dynamics have varied in different asset classes and countries. Office transactions have declined by 26% in Q3 and logistics deals by 9%, while the retail sector has bounced back with a 12% increase, the performance in Germany and Ireland being particularly strong.
Over the last 12 months €20.2 billion has been invested in European retail, with the high street accounting for 43%, an increase of 29% on the year before, while shopping centres and retail warehousing has seen a drop on 2023 figures.
“High street growth has been supported by the luxury sector,” said Schwarz. “Investors show most confidence in core markets, with Germany, the UK and France capturing almost two-thirds of transaction volumes. There’s a rush to secure prime product in the heart of the main cities, seen as guaranteeing long-term value.”
The retail sector has also been buoyed by the growth in tourist numbers, but in future domestic consumers should also play their part. “The slowdown in inflation will impact positively on real wages and consumer confidence, thus boosting domestic consumption across Europe,” said Schwarz.
The rise in tourist numbers to pre-pandemic levels has also been behind the success of the hotel sector, which has done well across Europe. Poland, Greece and the UK have seen the biggest rises in investment volumes, while the UK and Spain have attracted the most capital. “Hotels have been the favourite asset this year, recording a 67% increase on 2023 to €14.3 billion,” said Schwarz.
