In early 2024, as market expectations for central bank interest rate cuts gradually weakened, total commercial real estate sales in Europe fell to the lowest level in 13 years, reflecting the continued malaise in the real estate market.
In recent years, the European commercial real estate industry has been hit by sharp rises in debt costs and sharp falls in house prices.
Especially after the epidemic, some office buildings and commercial areas have become inaccessible, and the situation has become increasingly severe.
While global investors reassess when central banks may start cutting interest rates, hopes for a recovery in industries that are extremely sensitive to interest rates, such as real estate, have been dampened.
Real estate transactions worth more than 5 million euros ($5.4 million) were terminated in the quarter, with the number of properties for sale withdrawn from the market soaring to 110, the highest since 2010, according to MSCI Real Assets unit Record.
The data points to high levels of instability and uncertainty in the market, resulting in many high-value transactions not completing and a large number of properties being withdrawn from the sales market.
At the same time, total European commercial real estate sales fell 26% year-on-year to 34.5 billion euros in the first quarter of 2024, which was the lowest point since 2011 and marked the seventh consecutive quarter of annual decline.
In addition, Green Street research pointed out that compared with the peak in 2022, the value of European office buildings has fallen by about 37% on average, while the price of residential and industrial real estate has dropped by about 20%.
While some owners are forced to sell due to debt pressure, many are unwilling to realize losses during a market downturn.
High-net-worth investors without the burden of debt have driven most of the recent deals, although these have generally been limited to smaller deals.
Despite a decline in overall sales, London remains Europe\’s largest investment destination.
Prices in the UK have adjusted faster, attracting investors back into the market looking for cheap assets.
However, two high-profile office deals fell through during the quarter.
The two deals were the sale of 20 Old Bailey for £240 million and the sale of 5 Churchill Place in Canary Wharf to receivers for £110 million.
Some in the market took this as a sign that sellers may be waiting for better prices after the Bank of England further reduces borrowing costs.
Nick Braybrook, head of London capital markets at Knight Frank, said: “Statistically, the market situation in the first quarter was quite bad.
But in reality, that doesn\’t entirely reflect what\’s happening outside the market.
Market feeling and data performance are very different.
He noted that private equity groups are joining the family office bandwagon and are expected to facilitate more deal activity over the next six months.
In contrast, Tom Leahy, head of real estate research for Europe, the Middle East and Africa at MSCI, believes: \”After an extremely slow 2023, we had hoped to see a rebound in European real estate investment… However, the market is still difficult to trade.
Leahy added: “There is a divergence in price expectations between buyers and sellers, and this price gap is likely to persist unless interest rates start to fall or Europe’s economic growth prospects improve significantly.
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The weakening of interest rate cut expectations caused shocks, and European commercial real estate sales fell to a 13-year low.
In recent years, Europe\’s commercial real estate industry has been hit by sharp rises in debt costs and sharp falls in house prices. Especially after the epidemic, some office buildings and commercial areas have become inaccessible, and the situation has become increasingly severe.
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April 25, 2024 5:03 pm