- Projected economic growth rates of 0.9% for the eurozone
- Rental growth of 3.4% for logistics, 2.1% for office and 1.2% for retail in Europe forecast for 2024
- Prime yields for core properties are expected to peak in the first half of 2024
As inflation falls from its 2022 peak and central banks’ interest rate hikes are coming to an end, international real estate consultancy firm Cushman & Wakefield (C&W) forecasts a recovery in Europe’s real estate markets in its EMEA Outlook 2024, albeit at differing speeds by country and asset class.
Sukhdeep Dillon, Head of EMEA Forecasting at C&W, explains: “Looking ahead to 2024, our forecasts indicate that the commercial real estate markets are approaching a turning point after a turbulent period. Although economic growth is currently still subdued, the tide seems to be turning. While risks such as persistent inflation remain, forecasts point to moderate expansion rather than recession in Europe. Lower transaction volumes in many markets have led to a slower pricing phase, particularly in the office sector.”
Office space: quality over quantity
Despite the overall fall in demand in the European office market, more than half of lettings are in prime locations. As companies are favouring hybrid models with fixed office working and home office hours for their employees, buildings with the triad of good location, excellent amenities and sustainability continue to be in high demand. The trend towards higher-quality space, which has been in place since 2020, is continuing.
In the coming years, buildings with a positive ESG balance will become the norm. Given that 76% of extant European office space is at risk of ESG obsolescence by 2030, the continued robust rental demand means investors have an incentive to modernise or find alternative uses for office properties.
Logistics: take-up expected to reach pre-pandemic levels
After exceptional growth during the pandemic, the activity of European logistics occupiers has decreased significantly in 2023. However, the continued increase in e-commerce, nearshoring of production and demand for sustainable space will continue to boost demand in the medium to long term. C&W expects take-up to reach pre-pandemic levels in 2024.
The expectation of a more significant recovery in investment activity is based on the confidence that investors will allocate capital to logistics and industrial properties with a value-add or opportunistic approach.
Retail: Stable demand for first-class properties in a difficult environment
The retail sector is facing ongoing economic challenges. C&W does not expect take-up to recover until the end of 2024. As consumers face a higher cost of living, consumers’ propensity to buy has fallen and the number of tourists is still below pre-pandemic levels.
Due to these challenges, retailers are continuing to focus on creating attractive retail spaces with an experiential character in prime locations. This focus has resulted in fashion retailers accounting for 30% of lettings across Europe since 2021. This has led to a resurgence in retail rents, which are either at pre-2020 levels or even higher in high-quality locations.
Housing: Sustained demand
Non-cyclical demographic factors such as the ageing population, the declining home ownership rate and urbanisation continue to ensure high demand and contribute to the fact that the supply of senior housing, private rental properties and student accommodation is insufficient to meet demand. While rising construction costs have so far had a negative impact on investment activity, forecasts now suggest that receding inflation could lead to a turnaround in Europe in 2024.
