1. Newsroom
  2. European real estate: capitalising on market dislocations
Analysen 21.11.2023

European real estate: capitalising on market dislocations

European real estate: capitalising on market dislocations

The real estate market has had its share of upheavals and is in flux as Europe’s economies battle with the consequences of rising inflation and interest rates, weakening demand, and contracting exports, not to mention the unrest in Eastern Europe and the Middle East. Meanwhile real estate has its place as a value creator in investors’ portfolios.

After nearly ten years of high premiums on real estate yields compared with government bonds, the return of inflation and rises in interest rates have caused spreads to contract sharply in the last three years. With borrowing costs skyrocketing, credit requirements have tightened, leading to a drop in transaction volumes since 2022. As liquidity is unlikely to recover to the levels seen in the past six years, investors in the sector will be looking at longer holding periods and could turn to private lenders to increase their risk-adjusted returns.

Some longer-term trends have been at work too, affecting the different segments of the real estate market differently. These include falling margins in e-commerce, an increase in remote working, a changing tourism landscape, and the expansion of the digital data-driven economy.

Having dominated the market for decades, office space is expected to give up some of its market share to other segments of the real estate market:

  • Despite some pressure from e-commerce and the effects of credit tightening, retail has shown unexpected resilience, especially in luxury. The omnichannel model has emerged as more successful than pure online, and demand for retail parks and grocery stores remains robust.
  • While housing (residential) faces difficulties due to the surge in mortgage rates and refinancing costs, as well as stricter regulations on energy ratings, the need for renovations and the secular undersupply should open up value-add opportunities for investors with capital to spend.
  • Hospitality has picked up vigorously since travel restrictions were lifted. Also, a large proportion of hotels in Europe are unbranded and operated by independent owners, many of which are short of capital to cover expenditures. This creates opportunities for value-add investors.
  • As enrolments in Europe’s universities increase, the student accommodation market is being fuelled by increasing rents, low vacancy rates, acute undersupply and demand for higher-quality, institutionally managed residences.
  • The boom in e-commerce in the past decade, with record volumes during the pandemic, has benefited the real estate logistics segment. With occupiers of warehouses and the like concerned about lack of supply, investors are looking at strong rental growth prospects.
  • Data centres are supported by multiple growth drivers in 5G, artificial intelligence, the Internet of Tings, gaming and e-commerce. With a 32% capacity increase and hyperscale developments in the pipeline, exposure to this segment in investors’ portfolios is bound to increase in the coming years. 

Despite current disruptions across many sectors, the outlook for real estate is firm. An actively managed real estate allocation has an important role to play in investors’ portfolios, no longer as an alternative to fixed income, but as a source of value creation until the market reaches a new equilibrium.

Download the Brochure for More
Pierre Escande Pierre Escande
Head of Real Estate
Geoffroy Troesch Geoffroy Troesch
Head of Investments Management PMG

Globale Aktien

In Unternehmen mit nachhaltig besserer Mehrwertschöpfung investieren.

Auch lesenswert

Analysen 15.02.2024

Setting sail with Justine Mettraux

We had the privilege of welcoming sailor Justine Mettraux to a unique in-house conference at the Bank. She spoke about her experiences at sea, and in particular about her preparations for the next Vendée Globe – the biggest single-handed, non-stop, round-the-world yacht race.

Analysen 07.02.2024

UBP House View - February 2024

In a landscape marked by economic divergences between regions, with abating inflation and normalising interest rates, our convictions remain on the United States rather than Europe, a tech-oriented bias, and a cautious approach to China, while the return of firmer market fundamentals signal positive performances across various asset classes.

Analysen 18.01.2024

UBP House View - January 2024

Portfolio construction is back to the forefront in 2024.