Many investors today are wondering when they should return to the real estate market. The hesitant sentiment is understandable, as 2023 began with uncertainty about the health of the banking system on both sides of the Atlantic, the impact of the war in Ukraine on energy costs, capital markets volatility and the future path of economic growth, interest rates and inflation.
But a closer look at the European real estate market—beyond the prevailing headlines—suggests that the next several years are poised to deliver a host of attractive opportunities. Europe’s macroeconomic picture has improved, and concerns over systemic risks stemming from the banking system have subsided. Meanwhile, real estate fundamentals are strong, particularly for high-quality assets in sectors where supply and demand forces are painting a compelling picture—including housing, hospitality, science & innovation and logistics. Europe’s position as a leader on the environmental, social and corporate governance (ESG) regulatory front is also providing attractive opportunities to create value and address strong demand for sustainable properties.
At the same time, we expect to see capital structures come under increasing stress in the near term as debt service rises and maturities loom. The ongoing dichotomy between capital markets volatility and supportive real estate fundamentals is producing a compelling dynamic not seen in past cycles. The increased stress on many property owners who were previously able to finance assets at historically low rates will drive capital needs and create attractive conditions for those seeking to acquire real estate assets on a value basis.
All of this is opening a short window of opportunity to invest in European real estate for value.