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Real Estate

What’s Shaping the Value-Add Opportunity in European Real Estate?

February 2024 – 3 min read

While investing in European real estate still poses challenges, attractive value opportunities are emerging as we approach a cyclical bottom.

High prolonged inflation and interest rates have caused a steep decline in European real estate values. The current pall over the asset class is beginning to clear, enhancing its long-term attractiveness at a favorable market entry point. A compelling opportunity is available today for value-add investors. In particular, we believe there are a number of cyclical and structural forces that will drive occupier and capital demand, and therefore growth, in the short- to medium-term.

Cyclical Themes

The unwinding of more than a decade of low interest rates acted as a harsh reminder of the cyclicality of European real estate, with transaction volumes dropping over 60% from their 2021 peak (Figure 1). The trough of the property cycle is here, and the pace of valuation decline is expected to continue but at a much reduced rate. A peak to trough correction of about 20% looks likely.1 Significantly, where sellers are stressed and perhaps unable to refinance, opportunities for even greater discounts may emerge—in some cases, 40% off peak pricing could be possible.2

Figure 1: European Real Estate Capital Flows

whats-shaping-value-add-chart1.jpgSource: Real Capital Analytics/MSCI. As of September 30, 2023.

  1. Source: Real Capital Analytics/MSCI. As of September 30, 2023.
  2. Source: Barings Real Estate Research. As of December 31, 2023.

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Valeria Falcone

Head of Value-Add Investing, Europe

Rory Allan

Managing Director, European Real Estate

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