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European real estate on ‘road to recovery’, report argues

Confidence has begun to return to Europe’s real-estate market after the Covid-19 pandemic, a report from PwC and the Urban Land Institute has indicated.

According to Emerging Trends in Real Estate: Road to Recovery, the performance of real estate has looked strong this year, with higher forecast returns than in 2021. Confidence in the sector, the authors noted, was also supported by continuing strong investor demand.

“Debt and equity are expected to be plentiful although there are clearly big differences between sectors that performed well during the pandemic and those that suffered significantly,” they continued. “But with a society and real estate industry that have no experience of coming out of a pandemic and what ‘restarting the economy’ really means, there continues to be volatility and uncertainty.”

The report went on to note “the biggest current uncertainty” related to inflation and supply chains “impacting mostly construction prices and delivery schedules, just at a time when the industry wants to resume delayed developments or advance repurposing initiatives”. It continued: “As a consequence, we are seeing strong sentiment swings, as the industry struggles to interpret the potential impaact of supply chain disruptions, surging energy costs and labour shortages on real estate, and how long these issues might last.”

Business confidence

Just over half (52%) of respondents canvassed in the report said their business confidence had increased in 2022, up from 23% in 2021 and 25% in 2020. Some 4% said it had decreased, compared with 28% in 2021 and 13% in 2020. Meanwhile, 49% saw business profitability increase this year, up from 20% in 2021 and 37% in 2020. There was also a return to increased headcount, which went from 45% in 2020, to 22% in 2021, to reach 53% this year.

These results from PwC and the Urban Land Institute come a few weeks after MSCI said European listed real estate had fallen below March 2020 levels. Back then, the firm said war and the associated energy crisis, recession fears, decades-high inflation and rising interest rates had been weighing on European real estate, and particularly on listed markets.

As of 10 October, the MSCI Europe IMI Office, MSCI Europe IMI Residential and the MSCI Europe IMI Core Real Estate Indexes were below their lowest close of the March 2020 market turmoil. According to MSCI, the residential index had fallen furthest below its March 2020 trough – as of the same date, it was 16% lower. Despite sharp falls during the past year, the industrial and retail indexes still hovered above their 2020 lows.

Pete Carvill

Pete Carvill is a reporter, writer, and editor based in Berlin who has been writing for the B2B and mainstream media since 2007. He is a contributing writer for Expert Investor and, in addition, has...

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