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Where will the property market in Europe revive during 2024?

2024-01-04 13:55:57Biznes SHKRUAR NGA REDAKSIA VOX

Where will the property market in Europe revive during 2024?

European real estate investment is at a decade low and many forecasts expect 2024 to be the year to reverse this trend, due to potential key rate cuts. For borrowing costs to shrink and the economy to recover in many European countries, it is vital that the European Central Bank (ECB) and the Bank of England (BoE) lower their key interest rates.

Investors are closely watching the timing and intensity of any potential interest rate cuts, as the European real estate sector relies heavily on borrowing. The economic recovery in the Eurozone is fraught with uncertainty, due to tight monetary policy by many central banks, geopolitical tensions, extreme weather events and China's economic slowdown.

However, most expectations predict that core inflation will continue to moderate. At the same time, real estate demand drivers such as employment and consumer spending are expected to remain strong in Europe in 2024.

In this environment, according to Deloitte forecasts, the real estate sector is close to "returning to solid ground". In its global outlook for 2024, the accountancy firm surveyed sector executives and concluded that "the next 12 to 18 months are expected to be important as real estate firms reposition themselves."

Among the things that need to be done to stay ahead of the competition is cutting costs, as two-thirds of European industry leaders expect revenues to fall. Another priority is meeting environmental, social and governance (ESG) regulations and modernizing technological capabilities to prepare for changing market conditions and demands.

The Eurozone economy faces the risk of recession and the slowdown in inflation could reverse due to rising energy and food prices amid geopolitical tensions, causing considerable uncertainty for Europe's industry leaders. Deloitte's survey shows that industry leaders see the greatest opportunity in digital economy properties (data centers and cell towers) for the next 12-18 months.

Amid rising debt costs in Europe, there is still a significant pool of capital waiting to be deployed, according to Knight Frank's outlook for 2024. Despite economic difficulties in Germany, it remains the largest destination for cross-border capital in continental Europe. And while demand for offices in Germany is low, recent data suggests it is on the rise.

Elsewhere in Europe, Denmark appears to present opportunities, as its economy has the strongest outlook for 2024 among the Nordic countries. Its central bank lending rate is also lower than in the Eurozone, standing at 3.75%. The Danish housing and logistics sectors are expected to remain strong. Developers are particularly focused on housing for the elderly and students, two sectors which are in short supply in Denmark.

 

Across Europe, solid growth in tourism-related sectors means the hotel and hospitality sectors are also likely to attract investor interest in countries such as Spain, where hotel sector investment has already outpaced the total of the last four years, supported by the double-digit economic growth in the tourism sectors.

Global UK real estate company CBRE says in its outlook for the UK real estate market that 2024 "will be an opportune year to invest in commercial real estate", suggesting that rates long-term interest rates are likely to have peaked and stock buyers can find good deals and take advantage of discounted values ​​by buying at the end of the market.

It looks like 2024 promises to be the year when affordability will increase, inflation will cool, employment will stabilize and mortgages will potentially become cheaper. The global credit rating agency Fitch Ratings expects that mortgage rates will remain at slightly lower levels than in 2023. Small increases can be observed only in countries with a significant number of mortgages with variable rates (Denmark, Italy and Spain) or fixed mortgages for short periods, as in the UK.

Assuming inflation eases and a recession is avoided in the Eurozone, real estate investment firm AEW expects all European markets to grow over the next five years. According to the firm's 2024 outlook, real estate debt is expected to start rising again from 2025 in the Eurozone and 2026 in the UK.

Looking at countries specifically, AEW states that Germany is the most popular among investors. In terms of sectors, logistics in the Benelux countries, France and Spain are labeled 'attractive'. The European housing market is meanwhile forecast to be strongest in the Netherlands and Spain, while Belgian high street retail and German and UK shopping centers are also among the 10 most attractive markets in the coming years, according to AEW.


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