Real Estate

European Real Estate: Structural Reprice, But Secular Trends Endure

May 2023 – 9 min read

Barring capital market events and refinancing risks, the opportunity to invest at or near the bottom of the European property cycle appears close. The Barings Real Estate team discusses.

Economy
  • Europe’s economy escaped an energy crisis-induced recession this winter, growth remains positive, and headline inflation is rapidly cooling—albeit core inflation is proving stickier.
  • After 15 years of balance sheet repairs and a tightening of regulation and supervision, European banks entered the recent market turmoil on a strong footing.
  • ECB rate hikes may exceed market expectations if core inflation remains stubbornly high.
  • The U.K. economy appears to be on a slightly divergent path, with weaker growth and stronger inflation due to lingering structural shocks.
Property Markets
  • Interest rate hikes have been heavily felt in CRE prices, with value shifts of around -20% and transaction levels down -60% in the past 12 months.
  • Negative repricing has been greatest in the lowest-yielding, most sought-after sectors with the best long-term prospects, while the least attractive sectors have outperformed in the downturn.
  • Barring capital market events and refinancing risks, the opportunity to invest at or near the bottom of the European property cycle appears close.
  • The cost of debt will likely remain high, and investors will need to work harder for returns in the coming cycle. ESG will play a crucial role for investors to extract alpha and avoid obsolescence.

Want to read the full article?

View PDF

Paul Stewart

Head of Research & Strategy—Real Estate

Joanne Warren

Director, Real Estate Research

Benjamin Thatcher

Associate Director

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.

Related Viewpoints