Emerging Trends in Real Estate Europe 2024 | ULI

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European real estate market faces inflation challenges, emphasizing sustainability and cautious strategies in 2024.

The European real estate market is currently grappling with several challenges, including inflation, rising interest rates, and the increasing focus on environmental, social, and governance (ESG) issues. The central bank rate hikes in 2022 and 2023 have led to a cautious approach in the industry, with many opting for a wait-and-see strategy due to uncertainties in debt costs, property valuations, construction expenses, and risk of distress.

A notable trend is the discrepancy between market price expectations and book valuations, causing investment volumes to hit record lows. Questions are being raised about real estate’s appeal as a favored asset class in a prolonged high-interest rate environment. Although the survey for shows a slight increase in business confidence and profits for 2024, it remains significantly lower than previous years. The positive outlook largely hinges on strong underlying occupier demand.

The industry is closely monitoring economic forecasts, particularly for major economies where recession is a realistic concern. Geopolitical issues compound the uncertainty. National political shifts, housing affordability, social equity, inequality, and mass migration are also key concerns, with potential implications for social unrest and political upheaval.

Investors hope for more clarity on inflation and interest rates to rejuvenate transaction activity in 2024. However, there are mixed expectations regarding debt and equity availability in the coming years. The survey reveals skepticism about current real estate valuations accurately reflecting various challenges and opportunities, including climate change and social impact.

Investors and developers are now more cautious, focusing on cities like London and Paris that offer liquidity in risky times. ESG compliance is increasingly vital, with environmental sustainability, regulation, and asset obsolescence becoming more important. There are concerns over the vast amount of property requiring work and the risk of greenwashing due to suboptimal regulation. Despite high interest rates and construction costs, ESG compliance is not optional but a necessity for industry participation.

In terms of sectors, new energy infrastructure remains the most promising, followed by niche, operational sectors influenced by global megatrends. There’s potential for investment in areas like battery storage for renewable energy, solar farms, and electric vehicle charging.

The office sector faces challenges due to hybrid working, with focus on cost reduction, location, and appeal to talent. The concept of co-location, combining different uses in a single building, is gaining traction.

Overall, the industry is in a wait-and-see phase, but there are opportunities for those willing to make bold decisions, whether in market timing, investment strategies, or adapting to new working models.

Check the report here: pwc.to/3SLdVdJ