Europe’s real-estate investors are pessimistic about the sector’s prospects in 2023. They expect high energy prices and a recession to lead to lower occupancy and rents, even in previously strong sectors, and thus lower profits and investment, according to the Emerging Trends in Real Estate 2023 report by PwC and the Urban Land Institute.
A recovery in the real-estate sector is not likely before early 2024.
“The outbreak of war in Ukraine and its aftermath are bringing a new wave of pessimism among European real-estate investors, after the recovery from the health crisis briefly gave them confidence. Industry leaders predict that 2023 will be a difficult year, with liquidity falling in a market where investment volumes, rents and occupancy are all falling. Concerns about inflation, interest rates and economic developments are increasing compared to last year when they were already starting to alarm the business community. Opportunities for growth and good returns on investment still exist, but the equation of what represents a good business has changed again”, said Francesca Postolache, Partner, PwC Romania.
The availability of capital for investment in 2023 is at its lowest level since the 2008 global financial crisis, with development activity expected to fall sharply after a slowdown in 2022.
Pessimism about market developments is also reflected in respondents’ low intention to purchase real estate: the 51% of survey participants expecting to be net buyers of real estate in 2023 is lower than last year (59%). The data is even more pessimistic than in 2020, when 55% of survey participants said that they intended to purchase real estate in 2021.
Beyond the general uncertainty for the near future, investors point to other concerns about the sector’s development. Thus, 92% of respondents indicate that resource availability and construction costs are their main concerns for 2023 and the upcoming three to five years, amid material and labour shortages and inflationary pressures. Other concerns raised relate to European economic growth (76%), interest rates (73%) and global economic developments.
However, 2023 could also bring opportunities for well-capitalised investors, both in terms of acquisitions, given the falling valuations, and future developments, with an expected fall in land prices and a sharp decline in competition between developers.
The residential sector remains at the top of the preferences as it is considered more stable from an income perspective than the commercial sectors. However, sharp increases in construction and labour costs are also affecting residential developers by limiting supply while demand remains high.
Unsurprisingly, new energy infrastructure remains one of the most promising sectors amid one of the biggest global challenges − the transition to green energy. This is followed by the life sciences sector (R&D in pharmaceuticals, food, biotechnology, etc.) and data centres. Contrary to last year’s survey, logistics dropped in the overall ranking from third to eighth place, while there is increased interest in a number of sub-sectors with social components (nursing homes, social housing, etc.).
Top cities: London continues to top the list of the most attractive European cities for investments
The annual ranking of Europe’s most attractive cities for property investment shows that investors will continue to place their money in Europe’s major cities despite prospects having declined in all 30 of the cities analysed in the report. For the second year in a row, London remains the top city in the investor preference rankings for 2023, Paris moves up to second place and Berlin drops to third place. Moreover, the scores for all the German cities included in the list have dropped amid dependence on Russian gas and the potential impact on the European economy.
The “Emerging Trends in Real Estate 2023” survey was conducted by the Urban Land Institute and PwC with 1,038 respondents from 20 European countries.