The U.K. looks poised to lead a European real estate resurgence this year as international investors return capital to the region’s strained property market.
An anticipated fall in interest rates and modest economic revival will spur inflows from overseas investors looking to capitalize on “increasingly attractive pricing levels,” new research from international property firm Savills suggests.
U.S., Israeli, Japanese and Taiwanese investors are set to lead that charge, spearheading a 20% rebound in real estate investment activity in 2024 as they pump cash into Britain, Germany, Spain and the Netherlands, according to the research.
“Certainly, it looks like we’ve gone beyond the worst and we’re having a little bit of creep on the recovery,” Rasheed Hassan, Savills’ head of global cross border investment, told CNBC.
“The U.K. is one of the most heavily discounted markets,” he added, noting that it moved “hard and fast” but that its fundamentals — namely a deep market, easy accessibility and limited domestic competition — remain in tact.
European real estate revival
Britain ranked as the top European destination for cross-border investment in CBRE’s 2024 European Investor Intentions Survey, with investors pointing to its discounted rates and high return potential. It was followed by Germany, Poland, Spain and the Netherlands. London was dubbed the most attractive city followed by Paris, Madrid, Amsterdam and Berlin, the survey found.
“London is one of those few cities which consistently demonstrates its resilience in the face of challenging economic headwinds and remains a major focal point for global capital,” Chris Brett, managing director of CBRE’s European capital markets division, said.
The U.K. is now forecast to attract one-third — or around $13 billion — of 2024 outbound investment from the U.S. alone, according to estimates from Knight Frank. Germany, Spain and the Netherlands are set to be the next biggest beneficiaries of U.S. cash.
It follows a tough year for real estate in 2023, as higher interest rates pushed up borrowing costs and weighed on investor sentiment.
Global cross-border real estate investment totalled 196.3 billion euros ($212.9 billion) over the year, down 40% on the five-year average, according to Real Capital Analytics data cited by Savills. The downtick was most pronounced in Europe, the Middle East and Africa (EMEA), where inflows were 59% lower. That compares to the 56% drop seen in the Americas and the 12% dip recorded in Asia Pacific.
A total of 65.2 billion euros ($70.6 billion) was invested in continental Europe in 2023, the majority of which originated from intra-European cross-border buyers, primarily in France and Spain. Less than half (40%) came from outside of the continent — the lowest share since 2010.
However, that trend is expected to shift as international institutions and individual investors return to the market as the European Central Bank and the Bank of England show signs of cutting rates.
“We anticipate Europe will likely reclaim its leading position as the foremost destination for cross-border investments in the next 12 to 18 months,” Savills said in its note.
Beds and sheds
Beds and sheds — or residential and warehouse properties — are expected to be the biggest winners from the overseas cash injection in 2024.
This year for the first time, logistics and residential properties surpassed offices as the preferred asset class for overseas buyers, according to CBRE’s survey. More than one-third (34%) of investors expressed a preference for logistics and 28% for residential, compared to 17% who preferred offices.
It comes after office transactions fell 71% against the five-year average in 2023, according to RCA data, amid concerns of a wider commercial property downturn.
Still, Savills’ Hassan said options remain for “opportunistic investors” looking to take advantage of heavy discounts in the office and retail space.
“Surprisingly, we’re hearing statements [from investors] around we’d like to invest in offices right now. Looking ahead, I think there will be less negativity around offices,” he said.