European real estate investment slumps, but the worst may be over
In recent months, rising financing costs and mortgage rates have put pressure on the European property market. This has led to some notable consequences, such as a fall in property prices and the contraction of significant shares of investment in the sector.
The European property market is at the centre of the interest of many savers and investors, and has undergone significant changes as a result of the policy of raising interest rates pursued by the European Central Bank and the Bank of England. Bnp Paribas RE has drawn up an outlook on the property market (reported and effectively summarised by the "idealista.it" platform) which, first of all, describes a situation of considerable slowdown in investment. In particular, one figure shows that in the first half of 2023 investments in the residential segment fell by 62% compared to the same period last year.
With the exception of Spain, which recorded an increase in residential investment, the rest of Europe saw a decline, which was more pronounced in countries such as Germany, France and Scandinavia, and less so in the UK and the Netherlands. However, if we look at property investment as a whole, we see not only a market contraction of 57% - again measured over the first six months of 2024 - but also a general contraction in all European countries.
The fall in house prices is not as striking as the contraction in investment. However, it is important to note that house prices continued to fall in the first half of 2023, albeit at a slower pace than in the final quarter of 2022: -0.7% after -1.4% in the fourth quarter of 2022. Germany, Denmark, Luxembourg, Sweden and Finland are currently the countries where prices are falling the most. On the other hand, Frankfurt, Munich, Copenhagen, Amsterdam and Brussels are the cities with the highest price decreases.
The number of residential purchases and sales fell by more than 10 per cent in the first quarter of 2023. However, as the Bnp Paribas RE report shows, the downward correction in residential property prices may have bottomed out and, given the path of interest rates, a rebound cannot be ruled out. On the residential side, it should also be noted that rental demand continues to support rental prices. On the logistics side, the latter is perhaps the fastest recovering segment. Office space, on the other hand, seems to be the area where it remains the most difficult to make forecasts.
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