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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

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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