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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.

  • 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

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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