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After the storm comes a rainbow…

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Today, mood is very low among a large number of real estate players: investors, developers, lenders, brokers… but real estate is cyclical, let’s not forget that!

In recent weeks, some indicators have shown us that a recovery is underway for specific asset classes of real estate and in only few locations in Europe.

Despite the results of the European elections which have an upward impact on long-term interest rates in some European countries, we believe that a historic investment window is opening: this period should make it possible to seize very good opportunities due to the significant price drops observed since mid-2022 and the low number of active investors in the current real estate market.

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According to MSCI PEPFI Balanced Funds Index[1], value decrease ​​of real estate assets located in Europe is slowing down. The total return (including capital return and rental income) even became positive again in the first quarter of 2024 for the first time since mid-2022. In this new cycle, we forecast that a bottom in capital value ​​could be reached by the end of 2024.

However, the data presented above are averages and hide very different realities: in some countries and for specific real estate asset classes, total return for the first quarter of 2024 is clearly positive (e.g. Logistics and Residential in the United Kingdom at respectively +3.9% and +2.5%) while it is negative for others (eg: Logistics and residential in Sweden at -2.7% and -6.3% respectively).

Re Newsletter Graph 1

By comparing the index of listed European property companies (FTSE EPRA Nareit Developed Europe Index) and the change in the values ​​of real estate properties in Europe (extracted from the MSCI Pan-European Property Fund Index), we can see in the graph below that real estate property values follows real estate listed values ​​with a lag of approximately 12 months. Since the end of 2023, we can observe an increase in the shares of listed real estate companies (low point reached in October 2023). We can therefore expect a rise in physical real estate values ​​from the end of 2024.

Re Newsletter Graph 2

In conclusion, by studying change in building values over recent quarters, we see positive signals of recovery in values in specific sectors or locations. The low point of average properties values could be reached by the end of 2024. We could consequently expect a recovery in 2025 in many sectors and location.

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