Europe CRE 180
Economic recovery underway in europe
The global economy has proved resilient in the face of strong economic headwinds.
We expect global GDP to grow by 2.9% p.a. in 2024 and 2025.
Rising real incomes and lower interest rates will support a recovery in Eurozone economic activity.
Inflation rates normalise
Inflation rates have made significant progress towards central bank targets.
That said, much of the decline in inflation has been driven by global factors. Relatively little progress has been made on the domestically generated parts of inflation.
As a result, central banks will remain cautious about lowering interest rates.
Investment settling down
€141bn were invested in commercial real estate over the 12 months to Q2 2024, which represents a 26 % decrease compared to Q2 2023.
Though still lower annually, the rate of decline is halved and represents light at the end of the tunnel for the CRE sector. The investment market seems to be settling down following the inflationary shock triggered by post pandemic recovery and the Ukraine war.
Yields holding the line
Central banks kept up interest rate tightening efforts into the third quarter of 2023. Thus, the bond yield gap with real estate only truly began to firm up by late 2023.
Since Q4 2023 prime yields across all asset classes remain constant. Current levels are expected to hold for the remainder of the year, though compression signals may show late 2024 / early 2025.
Office letting: a subdued H1 2024
3.72 m sqm was transacted over H1 24 in the 18 main European markets, in line with H1 23 overall result. H1 volumes stood at 16% below their H1 10-year average.
While some markets have experienced a new decline in volumes, take-up gained traction in many markets.
Overall, 2024 letting volumes should be in line with 2023 results.
The flight to quality continues
While hybrid work models are here to stay, workplace plays a key role in attracting and retaining talent, both in terms of space quality and location. Demand is also high for energy-efficient and sustainable buildings.
These increasing quality requirements drive values up for modern buildings located in the most established districts.
