In 2024, where in Europe will the real estate market rebound?
Next year, Europe’s commercial real estate market may be driven by emerging technologies like artificial intelligence (AI) and robust growth in tourism-related sectors, while the housing market may struggle to recover and the rental market may skyrocket.
The investment in European real estate is at a ten-year low, and many predictions indicate that 2024 will be the year that this trend reverses, partly because of possible significant rate decreases.The European Central Bank (ECB) and the Bank of England (BoE) must cut their benchmark interest rates in order for borrowing costs to decrease and the economies of many European nations to grow.
Given how heavily the European real estate market depends on borrowing, investors are keeping a careful eye on the timing and scope of any prospective interest rate reductions.Nonetheless, the majority of forecasts say that core inflation will keep declining. However, factors that influence demand for real estate, like consumer spending and employment, are anticipated to be robust in Europe in 2024.
Forecasts from Deloitte indicate that the real estate industry is on the verge of “getting back on solid ground” in this scenario. The accounting company questioned industry executives for its global outlook for 2024 and came to the conclusion that “real estate firms are expected to reposition themselves in the coming 12 to 18 months.”Reducing expenses is one of the things that needs to be done to keep ahead of the competition, since two thirds of European industry leaders anticipate a decline in revenue. Complying with environmental, social, and governance (ESG) requirements and updating technology skills to get ready for shifting market conditions and needs are also top priorities.
The largest threats to European industry
The economy of the Eurozone is vulnerable to recession, and rising energy and food costs coupled with geopolitical concerns may reverse the recent fall in inflation, creating serious uncertainty for European business leaders.
Innovation is essential to the real estate sector.
According to a survey by Deloitte, business executives believe that over the next 12 to 18 months, digital economy properties like cell towers and data centers would present the most opportunities.Similar patterns were noted by London-based global real estate firm Knight Frank, which stated that in the current unstable climate, the most desirable places are anticipated to be those that prioritize innovation.
Strong data infrastructure is required as technologies like artificial intelligence (AI) gain traction. Judith Fischer, an associate at Knight Frank, told Euronews Business that the research firm’s projections show “a steady growth in European data center supply, with an estimated annual increase of almost 11% leading up to 2030, presenting a wealth of opportunities for investors.”
Where will growth occur in Europe?
According to Knight Frank’s 2024 prognosis, there is still a sizable pool of capital available for deployment despite growing debt costs in Europe.Germany continues to be the most popular destination for cross-border money in continental Europe, notwithstanding its economic difficulties. Although there is a modest need for offices in Germany, recent research indicates that this demand is increasing.
Denmark seems to offer prospects elsewhere in Europe, given that its economy has the best forecast among the Nordic nations for 2024. With a lending rate of 3.75%, the central bank offers loans at a lower rate than the Eurozone.It is anticipated that Denmark’s logistics and residential industries would continue to grow. Developers are concentrating especially on the underserved markets of senior living and student housing in Denmark.
Hotels and the hospitality industry are expected to draw interest from investors due to the strong growth in tourism-related sectors throughout Europe. In Spain, for example, hotel sector investments “have already surpassed the full year totals of the last four years, supported by double-digit economic growth in tourism sectors,” according to Fischer.
Prospects for rental growth are favorable.
The demand for residential rental homes is anticipated to remain strong despite the fact that rising financing rates have decreased affordability. Expanding rental restrictions (adding a cap to the cost of residential rentals) and ESG rules, however, may reduce investor profitability in Europe.According to French lender BNP Paribas, which focuses on retail and reports a clear rental increase and stable yields in their most recent property forecast, the demand for rent is anticipated to expand more slowly in the logistics and office sectors than it has during the previous five years.
There will be good news for Europe soon.The real estate investment firm AEW anticipates growth in all of the European markets during the next five years, assuming that inflation declines and a Eurozone recession is averted.
The firm’s 2024 projection predicts that real estate-related debt will begin to rise once more in 2026 in the UK and 2025 in the Eurozone.When it comes to individual nations, AEW claims that investors choose Germany above all others.