Falling interest rates will spur a revival in the real estate capital markets, according to CBRE’s 2024 European Market Outlook.

tasos

Tasos

However, tepid transaction activity and subdued economic growth are likely to make 2024 another challenging year for real estate before a more convincing recovery in 2025.

As inflation continues to cool in 2024, CBRE expects interest rate cuts by the ECB in H1 2024, followed by the Bank of England in H2.

For real estate, prime capital values in Europe are expected to bottom out in 2024 as interest rates stabilise. However, the cost of debt is likely to remain high and, consequently, CBRE anticipates only a modest uptick in investment activity.

'As capital values solidify and the economic backdrop continues to improve, buyers and sellers will start to become more comfortable with new pricing levels,' said Tasos Vezyridis, head of Thought Leadership for Europe at CBRE. 'We are anticipating higher investment volumes in 2024 compared with 2023, with activity predominately picking up in the second half of the year.'

According to the report, there is €66 bn of capital targeting European real estate, 63% of which is expected to be deployed in value-add and opportunistic strategies. Muted demand for core strategies illustrates the challenges of the current market, with a lack of price discovery in the prime segment making it difficult for buyers and sellers to gauge where values currently are.

Decarbonising the built environment will play an increasingly key role in strategies that aim to mitigate climate-change effects in 2024 and beyond. With carbon-intensive assets at risk of value depreciation, CBRE anticipates more incentives for financing retrofit and refurbishment projects.

'Occupiers are demonstrating a willingness to pay premium rents for environmentally compliant buildings,' said Ludovic Chambe, head of ESG & Sustainability Services, Continental Europe at CBRE. 'However, this is dependent on the availability of adequate real estate, so now is an opportune time for investors to benefit from repositioning buildings early in this transition period.'