“Staying alive until 2025” has become the great challenge for European real estate companies, faced with rising interest rates that make it difficult and more expensive to obtain financing, and reduce the value of the properties they have in their portfolio, according to the study. “Trends in the real estate market in Europe”, prepared by the consulting firm PwC and the Urban Land Institute.
The study, prepared from interviews with 1,089 senior managers of the main companies in the sector, indicates that these two factors have plummeted transactions: from January to September throughout Europe they have stood at 119,000 million euros, less than half of in 2022, while in Spain it amounted to 13,000 million, with a drop of 29%.
61% of executives consider that quality assets are overvalued compared to the prices that potential buyers consider appropriate. And the study corroborates that “asset devaluation is expected to accelerate in the next 12 to 18 months, especially if rates remain high while refinancing activity picks up.” Therefore, less than a third of those surveyed expect to be a net buyer of real estate assets by the end of 2024.
Managers are especially concerned about rates (86%), inflation (83%) and economic weakness (75%), while as specific factors in the sector they highlight the increase in construction costs (79%), the needs of investment in their portfolios (67%), and environmental requirements (67%).
By city, European executives placed London, Paris and Madrid as the three preferred cities to invest in 2024, with the Spanish capital climbing one place compared to 2023. On the opposite side, Barcelona has fallen one place, to tenth compared to ninth in the last year, because rent regulation reduces its interest for those who invest in housing.
Given this scenario, managers plan to concentrate their investments in sectors with stable income and resistance to recession such as logistics, or very specialized real estate: new energy infrastructure – battery storage for renewable energy, solar farms, electric vehicle parking -, data centers, facilities related to health sciences, student residences, senior residences and storage rooms. On the contrary, offices and shopping centers have fallen out of favor with investors.
“The European real estate sector is especially impacted by the macroeconomic situation and political instability, but we are seeing that the effects derived from these situations are selective with regard to the type of assets and locations,” explained the responsible partner. from the Real Estate Construction and Services sector at PwC, Antonio Sánchez-Recio, in the presentation of the study.
On the other hand, the Executive Director of ULI Spain, Barbara Recio, has indicated that the prospects for the real estate sector in the medium term are much “more positive”, assuming that by then rates will have stabilized and economic uncertainty will have been resolved in big measure.
