Investors should be looking to target real estate for the potential to “secure prime assets at discounts”, Savills has argued.
In European Property Themes 2024, the firm said investors would be “rewarded” if they choose to “ride the wave of yield compression” in the second half of the year. It also laid out its top picks for European investment, forecasting the prime logistics markets in the UK, Germany, the Netherlands, France and Spain would remain appealing to investors.
The firm also predicted that prime office stock within the centre of cities such as Paris, Madrid, London and Copenhagen would perform well, along with property in southern Europe, small-and-mid-sized grocery stores in all areas, and prime retail parks across Europe.
Outlining how the continent’s economy was due to suffer in 2024, however, the report’s authors wrote: “The eurozone is expected to record zero GDP growth in 2024 as it emerges from a mild recession in the first half of the year, according to Capital Economics, before expanding by 1% in 2025.”
‘Attractive’ asset class
Savills also predicted the European Central Bank would cut rates – from 4% to 2.75% over the year – following a dip in inflation, which it said would impact real estate markets. “Investors have enjoyed elevated risk-adjusted returns in recent years,” it said. “However, investors still consider real estate an attractive asset class, as institutional investment allocations to real estate remained stable at 10.8%, according to Cornell University’s asset allocation monitor.
“As interest rate expectations have fallen, the risk premium for investing in prime offices is currently above the long-term average for core European markets, and with a shortage of prime stock available, the Investment Property Forum forecast office rental growth to exceed the levels recorded pre-global financial crisis. Nevertheless, there remains a gap in buyer and seller expectations, and vendors who bought in 2020/21 are unwilling to sell at a loss.”
Elsewhere, a survey from INREV has found two-fifths (43%) of European investors planned to decrease their allocations in global real estate this year. This was a much higher proportion than Asian-Pacific (0%) and North American (32%) investors.