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European real estate close to bottoming out
Market sentiment indicator improves for second straight month
The Asset 20 Jun 2024

Europe’s non-listed real estate market appears close to the start of recovery after a market sentiment indicator showed a second consecutive month of improvement in June.

The INREV (European Association for Investors in Non-Listed Real Estate Vehicles) Consensus Indicator, which tracks the direction of trends in the market, had a headline reading of 53.6, up from 50.2 in March.

Encouragingly, four of the five sub-indicators now exceed 50, with the economic sub-indicator showing a significant increase to 56.1. This positive trend, along with the overall market improvement, is a promising sign for the European non-listed real estate market.

All five sub-indicators have improved since March, with the exception of leasing and operations, which declined from 60.2 in March to 58.9 in June.

This decline reflects a slight retraction in the growth of effective rents and occupancy rates, Nonetheless, leasing and operations remained the strongest sub-indicator, although the figures highlight the growing bifurcation in the occupier markets, according to INREV.

The latest results reveal that close to 15% of aggregate portfolios have seen rents decline, while 56% have experienced an overall improvement.

Deals still below quarterly average

European transaction volumes fell to €33 billion (US$35.42 billion) in Q1 2024, from €46 billion in Q4 2023, still below the long-term quarterly average of €57.2 billion.

Due to the seasonality effect, transaction volumes were lower in the final quarter of 2023. Although discussions around deal-making are taking place, the actual transaction activity is yet to pick up, INREV says.

Iryna Pylypchuk, director of research and market information at INREV, says: “European real estate has seen significant levels of repricing, and we see the first notable shifts in sentiment pointing to the fact that the market is close to bottoming out. However, it’s important to recognize that we are not out of the woods yet and that the recovery will be very nuanced.

“The latest [European Central Bank] cut should not be considered a precursor to further cuts in September and/or December. The next cycle will see a return to fundamentals as the era of low yields driven by artificially low interest rates is over.

“Outperformance will be focused on stock selection and the timing of the market entry. The speed and nature of recovery will vary notably across different markets and sectors. It will certainly not be a linear journey,” Pylypchuk adds.

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