European Property Market: A Shift in Price Trends

Discover the latest trends in the European real estate market and why the days of lower prices may soon be over. Stay ahead of the curve with insights on residential property values holding strong.

European residential real estate have managed to retain their value, while the decline in overall commercial property prices has slowed down significantly after a prolonged period of decrease, according to the latest data. The first quarter of 2024 saw a slight improvement in the commercial property market in Europe, with values dropping by just 0.5%, compared to a 3.4% decrease in the previous quarter, as reported by the Altus Group.

Altus Group's analysis of a €29 billion property pool managed by pan-European open-ended funds in 17 European countries reveals that European commercial real estate have lost 16.5% of their value since June 2022. Among the different property sectors, offices experienced the highest decline of 21.8%, while retail properties saw a decrease of 10% and residential properties lost 12.1% of their value during this period.

Notable improvements were observed in the French office market, which saw a 2.4% increase in value in the first three months of 2024 after a 7.6% decline in Q1 2023. Similar positive trends were noted in the industrial properties market in Denmark, Germany, and the Netherlands, as well as in the Swedish office market and residential properties in the Netherlands and Denmark.

The European real estate market has been impacted by high interest rates, leading investors to seek higher returns amidst rising yields. The increase in premiums, which are a percentage of the property value, has contributed to the decline in prices. However, rising rents have helped offset some of the risks, with the industrial sector experiencing a 1.9% increase in market rents despite a 0.2% decline in values in the first quarter of the year.

With inflation approaching central bank targets, investors are anticipating a reduction in interest rates by the ECB starting in June. This move is expected to lower risks, decrease capital costs, and improve returns, thereby alleviating the downward pressure on property values. Apart from the main property categories, values in other sectors rose by 3.3%, driven primarily by properties for student housing due to the ongoing shortage of high-quality student accommodation in European cities and strong demand for study abroad.

While European commercial real estate have experienced a decline in value, there are signs of improvement in certain markets and sectors. The anticipated interest rate cuts by the ECB are expected to provide some relief to investors and help stabilize property prices in the region.