Europe’s commercial real estate sector is taking a beating

(Tom Leahy, head of EMEAreal assets research at MSCI)

Commercial real estate investment dropped to its lowest in 11 years in Europe in the first quarter of 2023, according to MSCI Real Assets.

The number of office deals— Europe’s largest real estate sector — fell to its lowest on record
going back to 2007, while the volume of transactions slumped to a 13-year low of 10.8 billion euros ($11.94 billion). Offices have become a particular source of stress given the rise in remote and hybrid work. Rising borrowing costs are also squeezing property owners. Recent bank failures and fears around economic growth have also made investors more cautious.

“While there are obvious concerns about the availability of real estate finance following the banking turmoil in March, we’ve yet to see a widespread increase in distressed sales,” said Tom Leahy, head of EMEAreal assets research at MSCI.

The United Kingdom kept its crown as Europe’s largest commercial real estate market, but Paris overtook London to become the region’s top destination for investment, with the three largest European property deals-including luxury group Kering buying two Paris buildings- all taking place in the French capital in the first quarter.