MSCI Real Assets: il Commercial Real Estate Investment in Europa scivola per il settimo trimestre  consecutivo

European commercial real estate investment fell for the seventh consecutive quarter in the first three months of 2024 as many buyers and sellers remained unwilling to transact given the uncertainties over pricing, according to the latest Europe Capital Trends report from MSCI Real Assets.

The volume of completed transactions in the first quarter declined 26% from a year earlier to 34.5 billion euros, the lowest level since 2011, the quarterly report showed.

Expectations that the European Central Bank might start to cut interest rates in the Spring proved too optimistic, as 5-year swap rates continued to move out through the first three months on the year, impacting debt costs for commercial real estate. Meanwhile, pricing in many market segments has not fully adjusted to reflect the higher interest rate environment and subdued economic growth. Combined, these factors deterred prospective buyers and persuaded many property owners to delay sales to avoid crystallising potential losses.

Tom Leahy, Head of EMEA Real Assets Research at MSCI, said: “After a very slow 2023, there were hopes that European property investment would start to pick up in the first quarter of 2024, but the continued and sometimes painful readjustment to the end of historically low interest rates means the market remains a difficult place in which to transact. Buyer and seller price expectations have diverged and until interest rates start to come back down or the growth prospects for European economies improve markedly, the price gap is likely to remain in place.”

MSCI Price Expectations Gap data highlight the extent to which owners of properties in many core parts of Europe’s market would need to lower asking prices to complete a sale. Anecdotal evidence supports these findings: for example, there is a  -20% gap between asking prices for London office properties and the prices realised in completed sales.  

The prevailing uncertainty over pricing is reflected in the number of transactions terminated before completion or for-sale properties withdrawn from the market. The count rose during the first quarter to the highest since the Global Financial Crisis (GFC), underscoring the difficulties in completing property sales. Furthermore, the fewest number of companies were buying and selling commercial buildings in Europe in the first quarter since 2012. 

A breakdown of the data confirmed the continued weakness of office markets, Europe’s largest real estate sector, with transaction volumes declining 45% year-on-year to 7.6 billion euros. Office landlords are contending with the impact of hybrid working on occupier demand while the need to provide sustainable work environments has rendered many older buildings obsolete, unless there is investment in remedial works.

The quarterly figures showed sales activity in the major office markets of London, Paris and Germany dipped to the lowest since the GFC or to record lows in first-quarter 2024. Indeed, the collapse in office transactions was the chief cause for overall investment volumes in France falling 69% from a year earlier to 2.8 billion euros. 

Hotels were the only sector to register positive activity in the quarter, with transaction volumes growing by 20% from a year earlier to 4.5 billion euros, on prospects of the post-pandemic recovery in tourism. Archer Hotel Capital’s 260 million-euro purchase of The Shelbourne Hotel in Dublin and CDL’s 244 million-euro acquisition of the Hilton Opera Saint Lazare in Paris featured among Europe’s six largest single property transactions in the first quarter.  

There was also an improvement in certain national markets, notably in Scandinavia and the Netherlands. The Swedish market registered a 28% rise in investment activity since first-quarter 2023 to 2.1 billion euros, to rank it in fourth place behind the U.K., Germany and France respectively. The Netherlands was Europe’s fifth largest market as a result of a 18% annual increase in investment activity to 2.1 billion euros.  

The number of property sales arising from distressed situations is growing. The rapid increase in borrowing costs and falling property values have posed challenges at an asset as well as a corporate level to those property owners and developers with high levels of indebtedness. This is notably the case in Germany, where transaction volumes over the 12 months to March 31 have slumped 75% from the pre-crisis peak.  

Tom Leahy concluded: “When central banks start lowering interest rates, it will ease debt finance costs and bring buyers and sellers closer to agreeing a price at which they are prepared to transact. This will certainly support a recovery in transaction volumes in the short term, however, the end of the forty year interest rate cycle in 2022 means owners of real estate cannot rely on the market to do their work for them. The emphasis through this next cycle will be on adding value through active asset management.” 

Europe Capital Trends data based on office, retail, industrial, hotel, apartment, senior housing and development site properties and portfolios 5 million euros and greater unless otherwise stated. Data believed to be accurate but not guaranteed.

Source of the report and data should be noted as MSCI Real Assets. MSCI Real Assets is a part of MSCI.

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Source : MSCI