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Real Estate

European Real Estate: Frightening Tightening?

November, 2023 – 9 min read

While further capital declines are still occurring, we are now technically past the trough of the European property cycle. The Barings Real Estate team discusses how this is shaping both opportunities and challenges in the asset class.

Economy
  • Interest rate adjustments continue to slow the Eurozone economy to a crawl.
  • Despite renewed energy price volatility, inflation in the Eurozone continues its steady downward trajectory, but is proving more stubborn in the U.K.
  • Dovish comments from the ECB contrast with more hawkish “higher for longer” rhetoric from the Fed.
Property Markets
  • While further capital declines are still occurring, we are now technically past the trough of the property cycle.
  • Upward yield movements have been indiscriminate to investment fundamentals, with the best sectors and assets seeing the largest negative re-pricing.
  • A considerable opportunity has emerged for those with capital to employ for the next property cycle.
  • A deeper second leg to the correction would likely require interest rates to remain elevated for a very prolonged period or ratchet up even higher.
  • Offices: CEOs have strong aspirations to get employees back to the office, but this won’t solve Europe’s rising office obsolescence problem.
  • Retail: Steady retail vacancy in the first half of 2023, although the rate will likely rise as further store/portfolio rationalizations appear inevitable.
  • Industrial: Ongoing supportive industrial market fundamentals will likely drive future positive rental growth performance, albeit at a more moderate pace.
  • Residential: Rental property shortages are unlikely to ease, new schemes are being delayed, and higher mortgage rates are locking out would-be buyers; rental growth prospects remain strong.

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Paul Stewart

Head of Europe & Asia Pacific Real Estate Research & Strategy

Joanne Warren

Director, Real Estate Research

Benjamin Thatcher

Associate Director

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