European commercial real estate investment activity ended a seven-quarter decline by holding steady in the second quarter of 2024.
While overall transaction volume decreased by 2% year-over-year to €44 bn, a rebound in the UK and other smaller markets offset continued weakness in Germany and France, according to MSCI’s latest Europe Capital Trends report.
This resulted in total investment of €82.3 bn for H1 2024, a 10% decrease compared to the same period in 2023.
The residential sector surpassed offices as the most sought-after commercial real estate asset class in Q2. Investment in apartments surged in the UK, Germany, Sweden, and the Netherlands. Additionally, the hotel industry has seen a resurgence in investor interest, driven by the recovery of global travel and tourism and a growing preference for assets requiring specialized management.
Tom Leahy, head of EMEA Real Estate Research at MSCI, said: ‘The quarter’s data present a very patchy picture for Europe’s investment markets that is likely to persist in the second half of the year. The office sector remains in the doldrums and in certain markets, notably France and Germany, there is still a gulf in price expectations between buyers and property owners looking to sell. The ingredients for a broader-based recovery are gradually coming together, nevertheless. Occupier demand has proved to be broadly resilient in most sectors throughout the downturn and pockets of the European market appear to have re-priced enough to start attracting investors. Prospects of lower interest rates will ease funding and pricing pressures, while there is capital ready for deployment at price points that allow transactions to happen.’
The UK real estate market saw a 26% annual surge of investment volume in Q2 to €14.2 bn. London solidified its position as Europe's prime investment destination, attracting €8.7 bn in deals during H1. However, investment in the office sector plummeted to a record low of nearly €2.7 bn in H1. The living sector accounted for over €10.8 bn in transactions, while residential property investment reached a two-year peak in Q2, with student housing comprising over half of the €3.3 bn invested.
In Ireland, investment declined by 21% year-over-year to €1.2 bn in H1. Dublin secured its position as Europe’s 11th most active investment location, despite a slight decrease in deal value.
Germany experienced a 22% drop in investment in Q2, resulting in a 25% decline in overall transaction value for H1, totaling €12.2 bn. The country witnessed its lowest level of cross-border investment since 2009. Deals involving CBD offices were 79% below the ten-year average, and there was a widening gap between buyers' and sellers' expectations for office prices. Moreover, rising interest rates have exacerbated financial difficulties for the sector, with Germany accounting for over half of Europe's distressed properties. Despite these challenges, Berlin emerged as Europe's third-largest investment destination, primarily due to the high-profile sale of a portion of the KaDeWe department store for an estimated €599 mln.
France saw Q2 investment fall by 45% year-over-year to €3.9 bn, leading to a 52% decrease in H1 transaction volume. Overall activity is now more than 50% below the five-year average. Paris, while still Europe's second-largest investment destination, suffered a 64% drop in deals during H1. The Paris office market also faced a widening gap between buyer and seller expectations and a sharp decline in CBD deals.
In the Netherlands, investment increased in Q2 by 8% year-over-year to €2.4 bn, and by 13% to €4.5 bn in H1. However, Amsterdam's position as a European investment destination slipped to 18th place, with an 8% decline in deal volume.
Sweden saw an 18% annual decline in investment during Q2, although the overall picture for H1 was less severe with a 2% decrease. Despite this, Sweden maintained its position as Europe's fourth-largest real estate market.
Norway showcased strong growth, driven by significant deals such as the purchase of the Stortorvet 7 office building in Oslo, which contributed to a 17% increase in the city's investment activity. Oslo secured a position among Europe's top 20 single property deals.
Denmark and Finland also recorded positive performances, solidifying their positions within Europe's top ten investment markets.
