Modest Growth in Europe
In March, economic conditions in the major OECD economies remained favorable to limited expansion. In Europe, we are still seeing catch-up effects in energy-intensive sectors and the labour market remains resilient to current economic shocks.
However, we are still cautious as there are lots of uncertainties in the global economy. Growth remains finely balanced against recession.
The rapid acceleration in financing costs from mid-2022 destabilized pricing in the market, resulting in investment plummeting by Q4 as buyers and sellers pulled back. Over the 12 months ending with Q1 2023, investment reached €219 almost reaching Q1 2021’s low point.
Overall, between Q1 2022 and Q1 2023, investment decreased by 60%. All asset classes experienced a strong reduction.
Office letting activity: a quiet start to 2023
While 2022’s overall take-up returned to its long-term average in Europe, the contraction noticeable in few markets at the end of 2022 extended across Europe in early 2023. Take-up at the end of Q1 2023 shrank 23% relative to Q1 2022.
Most markets have experienced decline in volumes, mostly due to a reduced number of very large transactions.
Low momentum for European logistics
The logistics market in Europe is slowing as manufacturing is starting to feel the effect of slower demand. Yet market fundamentals remain healthy as low vacancy rates and limited land availability continue to push rents up.
Yield decompression is slowing towards stabilisation in most European countries. This could unlock investment activity in the next quarters.
Retail least affected by slowdown
Retail experienced only a decrease of 6% in investment volumes (vs Q1 2022) and regained interest in terms of investment market share. Brands expansion present a mixed picture in Q1 2023, with premium/luxury retailers and innovative mass-market ones still dynamic on the occupier market, while the cost of living crisis is exposing weaknesses in many brands’ business strategies.