Real estate investments in Europe - statistics & facts
Europe is one of the most attractive regions worldwide for property investments. In 2022, it concentrated nearly one-third of real estate assets under management by investor managers globally. Despite the important position of the region in the global real estate investment landscape, the industry suffered a dramatic decline in investment activity in 2023. Weak economic growth, inflationary pressures, higher cost of debt, and uncertainty around the pricing expectations of buyers and sellers caused a freeze in the market. In just a year, the value of transactions fell by over 46 percent. This trend affected the whole region, with investments in the largest commercial real estate market, the United Kingdom, declining by nearly 20 billion euros.
Looking ahead, gateway destinations such as London, Paris, and Madrid continue to attract developers and investors. For 2024, investors ranked these cities as the European cities with the highest prospects in the real estate market.
Challenges and opportunities for the European real estate industry
As the market recovers from what experts believe to be the dip, several themes cause elevated concerns. Firstly, construction costs emerged as the biggest issue impacting the industry in 2024. The inflation crisis led to a rapid increase in construction material prices and labor costs, challenging developers’ deadlines and budgets. Secondly, experts were worried about capex requirements, which refer to the requirements around improving the quality of an asset. Additionally, the industry needs to keep up with evolving sustainability regulations. Value-add appears to be the dominating investment strategy in 2024. Value-add investors seek to boost cash flow through the active management of assets, the improvement of operations, renovation, and sometimes even the change of use. That suggests less risk compared to the second-most popular strategy - opportunistic - which suggests significant development or redevelopment.Which asset classes and cities are investors targeting?
The main investment asset classes in the European real estate sector include offices, retail, industrial, hotels, and alternatives, such as rental housing. Although offices continue to dominate the investment landscape, their dominance has declined since 2019 because of the normalization of hybrid work. Conversely, trends such as the increased focus on supply chain resilience and the growing e-commerce sector have given rise to industrial and logistics investment, making it the second-largest asset class and the most targeted property type in 2024.Looking ahead, gateway destinations such as London, Paris, and Madrid continue to attract developers and investors. For 2024, investors ranked these cities as the European cities with the highest prospects in the real estate market.
