The tide may be turning for the European commercial real estate market, according to fresh figures from Cushman & Wakefield.
The agent’s EMEA Outlook 2024 report presents a bullish view of next year, predicting recovery will begin in the next 12 months.
As inflation cools from 2022 peaks and central banks approach the end of their rate hike cycles, Cushman forecasts that the property sector will bottom out, with markets and sectors moving onto a more positive trajectory at different paces behind the headline figures.
Sukhdeep Dhillon, head of EMEA forecasting at the agent, said: “As we look ahead to 2024, our forecasts indicate commercial real estate markets are approaching an inflection point after a turbulent period. Though economic growth remains subdued for now, the tide seems poised to turn.
“While risks like persistent inflation remain, baseline forecasts point to measured expansion rather than recession in Europe. The diminished level of transactions in numerous markets has led to a slower phase of price determination, particularly for the office sector. But we are beginning to witness swifter price adjustments taking place in the more liquid markets, such as in the UK and the Netherlands. As rate hikes end and cuts commence around Q3 2024, we expect to see a bottoming out for valuations.
She added: “2024 is shaping up as the early stages of recovery. Investors with a medium-term outlook should feel increasingly confident deploying capital as the market stabilises. The challenges of the past 18 months will give way to renewed optimism by this time next year. Nevertheless, it is paramount to have a thorough understanding of the sector to capitalise on opportunities for both occupiers and investors.”
The report predicts that offices with strong ESG credentials will become the norm and “option space” will become an increasing trend in lease agreements. The firm said flexibility remains paramount, which has led to an uptick in “option space”, with more than one-third of London leases over 50,000 sq ft signed between 2020 and H1 2023 having expansion options.
In logistics, the continuing shift of retail to online and an increase in nearshoring, will see an increase in demand for sustainable space. Take-up volumes in 2024 are expected to reach pre-pandemic levels, with a more meaningful recovery in investment activity tied to overall confidence in the sector.
Throughout 2024, capital for retail assets will primarily orientate towards “essential” assets in robust catchments, said Cushman. Effective asset management, community engagement and sustainability improvements will remain crucial to enhancing value, said the agent, adding that while investors recognised positive occupancy patterns, they remained wary of economic obstacles affecting consumers and retailers and primarily are directing attention towards prime assets.
In the beds sector, Cushman expects values and volumes across the living sector to rebound firmly from mid-2024, while hotels will continue to show resilience, with investors targeting them for their flexible income potential.
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