MSCI: investment activity up in Q4 but market recovery patchy

The final three months of 2024 were European commercial real estates busiest quarter in two years for investment activity But the market’s recovery was patchy, according to MSCI’s latest Europe Capital Trends report.

Source: MSCI

Property sales completed in the fourth quarter totalled €55.6 billion, an 11% increase from the same period a year earlier, the report showed. This took transaction volumes for the year to €188.8 billion, up 4% on the deal activity for 2023. 

“The mood in the market is on the cautious side of optimistic, even though investment volumes have bottomed out and the correction in pricing appears to have run its course in the most liquid markets,” said Tom Leahy, head of EMEA real asset research, MSCI.

The British, Swedish and Dutch markets appear to have turned a corner, but lacklustre growth and political uncertainty held back investment in France and Germany.

The UK was Europe’s most active market in 2024. It enjoyed a 26% rise in sales from a year earlier, exceeding the combined deal activity for next placed Germany and France. A rapid revaluation at the end of 2022 made it the first to slow during the downturn. Now there is growing pressure for certain in-demand assets, lifting pricing notably for industrial properties.

Source: MSCI

While the German market stabilised towards the end of 2024, annual investment was down 8% at the weakest level since 2011. Sales activity was dominated by apartment transactions as landlords such as Vonovia reshaped portfolios and paid down debt. The French market contracted by one-third last year with sales volumes at the lowest since 2010, reflecting record-low office transactions.   

Throughout the year negative sentiment overshadowed Europe’s office sector. 2024 was the worst on record for office transactions, by number of deals, as the working-from-home trend and obsolescence risk deterred investors.

The sector accounted for 22% of total volumes compared with a 40% share in 2019. The sector is polarising, with outperformance by well-located, modern and sustainable buildings that meet the space requirements of occupiers. A higher proportion of offices than ever before were acquired for repositioning through redevelopment or refurbishment.

Looking ahead, “the recent bond market volatility has implications for how real estate is priced and European economic growth is sluggish, while the volatile geopolitical environment presents other risks to prospects for Europe’s real estate markets,” said Leahy.

There are pockets of positive news which give grounds for optimism. For instance apartments, hotels and the industrial sector continue to attract investors’ capital. The data also show investments made in the aftermath of a market correction outperform those made when the market is booming, “meaning 2025 could be an excellent fund vintage”, Leahy said. “However, the drivers of property performance in this new cycle are fragmenting; the recovery is not happening everywhere and neither is it happening all at once.”   

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