The real estate market in Europe: what is the mood among investors
ULI Institute, which deals with urban land, and PwC have analyzed the real estate market in Europe and given their forecast for 2023. The main message of the report was the fact that the segment is experiencing instability and sentiment which has not been observed in the region since 2012. And experts note that the decline in profitability and volatility will only worsen.
The main problem in 2022 was the geopolitical conflict in Europe, which affected the entire world. Its consequences were primarily reflected in an increase in energy costs, a record rise in inflation, and, as a consequence, rising interest rates. A survey of the companies showed that 7 out of 10 respondents expect that the economy of the European Union will soon be in recession. And the mood in this case was even more pessimistic than during the pandemic.
So far the analysis of European cities in terms of investment attractiveness looks like without significant changes. London traditionally takes the lead as the most promising real estate market – both in terms of offices and logistics facilities. There is a revival in the tourism sector and hotel business, and retail is growing.
In second place after the British capital in the ranking is Berlin, but its prospects are lower than they were in 2021. The reason is the country’s dependence on energy supplies from a sub-sanctioned exporter, which has a negative impact on both the market of individual cities and the economy of Germany as a whole. However, so far Berlin remains competitive, and the prospects for investment in the real estate sector of the city are assessed by experts as high. Vacant offices in Berlin occupy a share of 3.5-3.7%, and the location of facilities does not play a major role here.
In 3rd place in the ranking is Paris, primarily due to the sustainable energy system of France, represented by nuclear power plants. However, in the capital’s real estate market, the profitability of investments in offices depends on their location, objects in remote areas will not bring high returns.
Experts respond that there will not be a catastrophic reduction in liquidity. Like 2022, this year the tendency of asset redistribution among investors will remain. They are reducing investments in basic real estate and directing them to objects that use renewable energy sources – solar, wind, and others.
As a result of the deteriorating global market sentiment, many investors have adopted a wait-and-see attitude and suspended active operations. 88% of respondents have canceled a number of deals, citing lower economic growth in Europe. 81% of respondents cited problems not only in the local economy but also in the global economy as the main reason.