Europe - CRE 360 report - November 2022
A significant slowdown of economic activity
Given the current uncertainties and the deterioration in the business climate, we expect negative GDP figures in Europe for the rest of the year. As a result, we are expecting a significant slowdown of the economy, but not a strong recession. Indeed, the signals from the job market are still.
Investment still high
On a rolling-year basis €304bn was invested in Q3 in Europe. Activity clearly declined in Q3 2022 (-3% vs Q2 2022), although growth remains positive on a 9 month basis. Historically the 4th quarter is very active in real estate investment, which may ensure 2022 shows positive annual growth overall.
Office: letting activity sustained momentum in Q3
8.3 million sqm was taken-up since January 2022 in Europe’s 25 main markets, rising significantly compared to the same period last year (+29%). Most of markets surpassed long-term average driven by a robust post-crisis demand for modern workspaces.
Gradual deceleration in European logistics
Market fundamentals remain healthy with a gradual deceleration in the leading occupier markets except in Germany. Low vacancy rates and limited land availability contribute to rental growth. Investment is setting a new record though there are some signs of slowing down. Uncertainties in the financial markets and rising interest rates resulted in fiercer negotiations and yield decompression in most European countries.
Resurgence in retail investment
Retail investment experienced a good increase over 12 months (+20%) with a total investment volume of €44.2bn. International tourism strongly recovered during summer and footfall has improved in every European city. Macroeconomics challenges include geopolitical uncertainty and the inflation surges that could lead to a decline in retail sales growth in 2023.
Strong growth despite the rise in financing costs
Residential activity still very strong despite the increase in financing costs. House prices rose by 9.9% and rents by 2.2% in Europe. Likewise, we continue to observe resilient investment volume with €45.5bn invested in the first 9 months of 2022 i.e. -8% compared to the same period last year but +15% regarding the 5-year average. We expect residential markets across Europe to slowdown owing to the sharp increase in financing costs and the risk of overvaluation in some markets.