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Europe’s real estate market poised for recovery in 2024

With the rise of AI technologies and strong growth in tourism-related sectors.

The European real estate market is set to rebound in 2024, with the rise of AI technologies, strong growth in tourism-related sectors, and potential key rate cuts driving investment. Despite the housing market’s struggles, the rental market is expected to soar, providing opportunities for investors.

Deloitte’s global outlook for 2024 suggests that the real estate sector is close to “getting back on solid ground.” The accounting firm surveyed sector leaders and concluded that “the coming 12 to 18 months are expected to be important as real estate firms reposition themselves.” Companies are focusing on cutting costs, meeting ESG regulations, and modernizing technological capabilities to prepare for the changing market conditions and demands.

Industry leaders in Europe are primarily concerned about cyber risks, regional political instability, and climate-related regulatory action. Rising interest rates and high inflation also pose significant risks to their financial performance.

Digital economy properties, such as data centres and cell towers, present the biggest opportunity for investors in the next 12-18 months, according to Deloitte’s survey. London-based global real estate consultancy Knight Frank predicts “a steady growth in European data centre supply, with an estimated annual increase of almost 11% leading up to 2030, presenting a wealth of opportunities for investors,” as stated by Judith Fischer, associate at Knight Frank.

Germany remains the largest destination for cross-border capital in mainland Europe, despite economic hardships. Denmark’s economy has the strongest outlook for 2024 among the Nordic countries, with the residential and logistics sectors expected to remain strong. Spain’s hotel sector investments are also attracting investor interest, supported by double-digit economic growth in tourism sectors.

In the UK, CBRE suggests that 2024 “will be an opportune year to invest in commercial real estate,” as long-term interest rates have likely peaked, and equity buyers could find good deals and benefit from discounted values.

The housing market is expected to see increased affordability, cooler inflation, stable employment, and potentially cheaper mortgages in 2024. Fitch Ratings forecasts slight nominal price growth or no change in six of the seven major European markets, with France being the exception, where prices are expected to fall by 2% to 4%.

The rental market has strong prospects, with high demand for residential rental properties expected to continue. However, expanding regulation on rental controls and ESG requirements may impact investors’ profits.

AEW expects all European markets to grow in the next five years, assuming inflation comes down and a recession is avoided in the Eurozone. The company’s 2024 outlook predicts that real estate-related debt will start swelling again from 2025 in the Eurozone and 2026 in the UK.

As the European real estate market prepares for a potential recovery in 2024, investors are closely monitoring key factors such as interest rate cuts, economic recovery, and the growth of innovative sectors like AI and tourism. With careful positioning and adaptation to changing market conditions, the industry is poised for growth in the coming years.

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