Investment across the European real estate market totalled €248bn in 2022 – a fall of 14% on the previous year, according to law firm CMS.
The first half of last year saw markets rebound after the Covid pandemic, according to the European Real Estate Deal Point Study – however, the sharp increase in financing costs in the second half of 2022 prompted cautious investment behaviour, leading to a decline in overall investment levels across the continent.
The decline was particularly pronounced in the final quarter of 2022, CMS found, with investments plummeting 57% compared with the same period in 2021, reaching approximately €47bn.
“The volatility in the European real estate investment market during 2022 emphasises the need for investors to remain vigilant and adaptable in the face of ever-changing economic conditions,” said Dr Volker Zerr, a partner in the real estate and public division at CMS Germany and co-author of the study. “The ongoing uncertainty in the market has nevertheless created a favourable environment for buyers, enabling them to negotiate high discounts when purchasing properties.”
He added: “The decrease in real estate investment has continued this year. In the first half of 2023, a clear reluctance on the part of investors could be observed. One of the main reasons for this is the constantly increasing interest rate environment. So far, there are no indications of a trend reversal, so further development remains to be seen.”
CMS said it had observed investor interest in office property begin to rise again after a record low in 2021, making it the most sought-after asset class on the continent alongside residential property. Meanwhile, investment in that sector accounted for nearly a quarter of the market. The main reason for the popularity of residential properties, the report said, was the stable income that they generate.
It also noted that international investors accounted for most real estate investments. At 54%, their share was almost the same as the 55% of the previous year. National buyers had dominated the market as recently as 2020 due to the Covid-19 pandemic but this trend has now reversed slightly in favour of international investors, following the lifting of pandemic-related travel restrictions.