Commercial real estate deals in Europe continued to stall in the first quarter of 2024, MSCI Real Assets said. The firm’s quarterly Europe Capital Trends report showed that the volume of completed transactions stood at €34.5bn, down 26% year-on-year, the lowest level since 2011 and the seventh straight quarter of annual declines.
“After a very slow 2023, there were hopes that European property investment would start to pick up in the first quarter of 2024, but the continued and sometimes painful readjustment to the end of historically low interest rates means the market remains a difficult place in which to transact” Tom Leahy, the head of EMEA real assets research at MSCI, said.
The quarterly figures confirmed the continued weakness of office markets, Europe’s largest real estate sector, with transaction volumes dropping 45% to 7.6 billion euros from a year earlier, as economic uncertainty in the Old Continent continues to loom large.
“Buyer and seller price expectations have diverged and until interest rates start to come back down or the growth prospects for European economies improve markedly, the price gap is likely to remain in place” Leahy added.
A breakdown of the data showed that hotels were the only sector to buck the trend and registered positive activity in the quarter, with transaction volumes reaching 4.5 billion euros, increasing by 20% year-on-year. There was also an improvement in certain national markets: Sweden witnessed a 28% increase in investment activity to 2.1 billion euros while the Netherlands registered a 18% rise in investment activity since first-quarter 2023 to 2.1 billion euros.
The report also highlighted that the number of property sales arising from distressed situations is growing. The rapid increase in borrowing costs and falling property values have posed challenges at an asset as well as a corporate level to those property owners and developers with high levels of indebtedness.
“When central banks start lowering interest rates, it will ease debt finance costs and bring buyers and sellers closer to agreeing a price at which they are prepared to transact. This will certainly support a recovery in transaction volumes in the short term, however, the end of the forty year interest rate cycle in 2022 means owners of real estate cannot rely on the market to do their work for them. The emphasis through this next cycle will be on adding value through active asset management” Tom Leahy concluded.
Europe Capital Trends data based on office, retail, industrial, hotel, apartment, senior housing and development site properties and portfolios 5 million euros and greater. MSCI Real Assets is a part of MSCI, a leading provider of critical decision support tools and services for the global investment community.
