European commercial real estate markets remained sluggish in the first quarter of 2024 as hopes for aggressive interest rate cuts faded and investors stayed on the sidelines, according to property services firm, Colliers.
Even so, a ‘steady flow of smaller deals’ and even some large transactions point to healthy residual appetite, according to the firm’s latest Capital Markets Snapshot for Europe, the Middle East and Africa (EMEA).
Investment in the residential and industrial and logistics sectors was relatively buoyant, with demand generally outstripping supply in major markets like France and the UK and limited new product coming to market.
In Denmark, Colliers advised on the sale of a 14-strong portfolio of light industrial and warehouse assets around Copenhagen, while Colliers Belgium facilitated the sale and short-lease-back structure of the key Hoogveld 50A logistics hub in Dendermonde. Activity has been largely confined to sub-€100 mln transactions, with a noticeable drop-off in both supply and potential buyers as tickets grow larger.
Hotels
The hospitality sector has also emerged as a clear regional outperformer as a resurgence in visitor numbers, occupancy rates and profitability sparks investor interest in hotel assets in leisure destinations like Spain and Italy. This continues the trend of 2023, when Spain saw the second-highest annual levels of investment in hotels of any year recorded at almost €4.3 bn, driven by investors from Asia and the Middle East. Properties in Europe’s major business hubs like Paris and London are also attracting interest.
‘The silver lining of the pandemic from the hospitality perspective was operational efficiency, and that is starting to feed through into the results of hotels,’ said Luke Dawson, head of global and EMEA capital markets. ‘Investors are looking at the sector as a compelling growth space over the next few years based on its fundamentals, and we’re strong believers the hotel market will continue to expand its market share of overall investment transaction volumes.’
Norway deal
While sentiment around the office sector remains weak, some major transactions concluded over the quarter. These included Stortorvet 7 building in central Oslo, Norway, for over €222 mln in what Colliers experts see as a signal of more to come. ‘The market will be tested by more, large core office sales in the second half of this year, which will be a big marker for where markets and pricing are going to land,’ continued Dawson.
Another trend dominating the regional market is an increasingly competitive environment for capital, as many different groups seek to raise funds or recapitalise, while potential providers of capital remain thin on the ground.
This fundamental imbalance is pushing more developers, investment and fund managers to explore joint ventures and other new structures to meet financing needs. “Looking over the past decade, the complexity of deal structures in European capital markets is probably at an all-time high,” Luke Dawson concluded.
This is also one factor behind the increasing prominence of private equity in some markets. Colliers data shows that private equity accounts for a quarter of deals currently under offer in London, as firms take advantage of the relative lack of competition and lower price expectations. Tracking of deals under offer indicate some £421 mln (€494 mln) in capital from private equity sources poised for deployment across the London market, an indication of both pent-up appetite and the greater role private capital will play in the regional commercial real estate investment space.
