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Real Estate

European Real Estate: The Fight Back Begins!

February 2024 – 9 min read

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.

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Paul Stewart

Head of U.S. & European Real Estate Research & Strategy

Joanne Warren

Director, Real Estate Research

Benjamin Thatcher

Associate Director

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document 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. Parts of this document 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 document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document 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. Any investment results, portfolio compositions and/or examples set forth in this document 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 document. 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.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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