Latest data reveals that European residential properties have retained nearly all their value, while the overall decline in commercial property prices has significantly slowed after nearly two years of continuous drops.
There is a glimmer of hope for Europe’s commercial property market, as a longstanding downward trend showed signs of easing during the first three months of 2024. Although property values declined, the reduction was a modest 0.5% in the first quarter, a marked improvement compared to the previous quarter’s 3.4% drop, according to data from the Altus Group.
Phil Tily, Altus Group’s senior vice president, noted in the group’s analysis of European property market trends, “As we start off 2024, we’re seeing encouraging signs in the European commercial property market, with commercial property value declines moderating significantly across all sectors.”
The report highlighted that industrial and residential properties retained nearly all of their value from the previous quarter. Specifically, the decline in office valuations slowed down significantly to 0.8% from 5.3%, marking the smallest decrease since property valuations began falling in Q3 2022.
Looking for better returns amid higher yields, investors have faced the challenge of premiums rising as a percentage of property value, which drags down prices. However, rising rents have helped offset some of this risk, mitigating the decline in prices. For example, the industrial sector saw property values decline by 0.2% in the first quarter, but market rents increased by 1.9%. As inflation nears central bank targets, investors are now anticipating the ECB will begin cutting interest rates in June. This anticipated move promises lower risks, cheaper capital, and better returns, which could reduce the downward pressure on property values.
Beyond the main four property categories, values rose by 3.3%, primarily driven by properties for student housing. The report attributed this to “the ongoing shortage of high-quality student accommodation in European cities, coupled with strong demand for study abroad.”
Real Estate Credit Investments Limited (LON:RECI) is a closed-end investment company that specialises in European real estate credit markets. Their primary objective is to provide attractive and stable returns to their shareholders, mainly in the form of quarterly dividends, by exposing them to a diversified portfolio of real estate credit investments.
