Union Investment's European Property Investment Climate Index – which has been published every six months since 2008 – has found the average investment intention among companies in three major countries tends towards sales, yet the study also states the market is slowly 'on the rise'.
According to the study, 42% of European property investors will be net buyers this year. However, 28% plan to sell more properties than they buy. For 23%, the direction is not yet clear.
The index is calculated from four sub-indicators: market structure, framework conditions, location conditions and expectations, each weighted at 25%. For the current study, the market research institute Ipsos surveyed a total of 137 property companies and institutional property investors in Germany (52 companies), France (58) and the UK (27) between November 2023 and February 2024.
Union Investment said there are clear differences between countries: While only 35% of respondents in Germany consider themselves net buyers, the figure is 44% in the UK and as high as 47% in France. This year, 31% of property investors surveyed in Germany and France are net sellers, compared with just 15% in the UK.
Many investors are buying fewer office buildings and reducing the proportion of office space in their portfolios. Union Investment, for example, has sold VisionCrest Commercial in Singapore, Shibuya Prime Plaza in Tokyo, Fifty-One in Zurich and Smultronet 6 in Stockholm in recent months.
‘Although the overall transaction volume on the property markets has fallen sharply and sentiment towards office property is rather negative, sales of office buildings can be realised at good prices even in these challenging times,’ said Martin Schellein, head of investment management Europe.
To increase the resilience of their property portfolios, the majority of European property investors (61.1%) intend to invest primarily in modernising their portfolios over the next two years. 37.2% plan to sell properties in unattractive locations and buildings in need of modernisation over the next 24 months to make their portfolios even more resilient. And 31.3% of respondents are focusing on smaller property sizes when buying in 2024/2025.
The property industry is facing a wide range of transformation challenges from decarbonisation, digitalisation to demographic change.
The highest rise in interest rates in 60 years has also set in motion a rapid cyclical shift. As a result, European real estate investors will focus their strategies over the next two years on performance (79%), sustainability (73%) and portfolio resilience (68%).
Senitment on the rise
Overall, sentiment on European property markets is slowly recovering, said Union Investment. While the property investment climate index only rose in Germany (by 2.4 points) in the first half of 2023, the barometer is now turning positive in all three countries. In Germany, the ratio rises by a further 0.8 points to 62.1 points in the second half of 2023, and in France by 3.4 points to 62.7 points. The UK saw the largest increase, up 4.2 points to 63.8, giving it the best property investment climate of Europe's three largest economies.
The majority of European property investors (57%) expect European investment markets to recover by 2025. In fact, 28% of respondents believe it will take even longer for the markets to regain momentum.
Only 12% said they expected to see an upturn as early as this year.
When asked which type of use would offer the best conditions for investment over the next twelve months, 37% of respondents said the logistics property market, 16% voted for the hotel market, with retail, office and residential coming in third with 12% each.
