Real Estate
European Real Estate: The Fight Back Begins!
Central bankers’ next moves remain highly data dependent, although the broad direction—if not the magnitude—of interest rates and therefore market property yields likely remains downward in 2024. The Barings Real Estate team discusses how this is shaping both opportunities and challenges in European real estate.
Economy
- The Eurozone economy skirts a mild, technical recession as interest rates bite.
- Falling inflation and slower economic activity bolster the case for rate cuts in 2024.
- A gradual recovery should begin later this year, powered by building inventories and a consumer recovery.
Property Markets
- The lowest yielding assets in sectors and locations with the best long-term outlook have suffered the most pain.
- A brief and relatively shallow rental cycle slowdown should be insufficient to induce a second re-pricing leg and unlikely to push property yields up further.
- The timing of recoveries in property pricing by geographies and sectors likely will occur in line with variations in real estate debt refinancing funding gaps.
- Office: Tightening CBD vacancy rates and a shift in demand to Grade A bode well for a wider rental premium for best-in-class space.
- Retail: Improving outlook; we expect omnichannel experimentation to rise.
- Industrial: Take-up and rental growth are moderating, but from record levels; structural tailwinds remain supportive.
- Residential: The lagged impact of interest rate hikes is now filtering into house prices. Without a significant rise in unemployment, a modest correction in house prices was always anticipated.
