The market real estate of Europe has bottomed out and the crisis squeezing the prices of the best properties is coming to an end, according to AEW, which is the real estate arm of Natixis Investment Managers. He is one of the first experts to talk about a market turnaround.
According to a report by AEW, cited by Bloomberg, the returns of commercial real estate in the better warehouse, office and shop segment it will be around 9.2% per annum in the four years to 2028.
The best odds will be noted at United Kingdomwhere the correction is larger, with the market giving annualized returns of 10.7%.
The sharp increase of interest rates in the UK and Eurozone over the past two years has ended a multi-year boom in the European property market, with warehouse values plunging by 30% in the past 18 months and office prices down by 20%. The crisis has driven several manufacturers into bankruptcy, prompting banks to make provisions for loan losses.
“What has really changed is the depth of the repricing in 2023,” AEW’s head of strategy and research for Europe Hans Brensen told Bloomberg. “Our 2024 forecast is perhaps surprisingly positive because we think the repricing is mostly complete.”
Investors typically borrow when buying real estate to boost their returns, but sharply rising interest rates and a comparatively slower price correction have upended that strategy. However, decelerating inflation and slowing growth mean that the Borrowing Cost will decline in the medium term, so loan-backed property deals will again be more attractive from 2025 in the Eurozone and 2026 in the UK, according to AEW.
“We believe the plane will take off again, but let’s say the cleanup crew is still in the back of the plane,” Brensen said.
