Research Briefing | Sep 26, 2023

Five reasons why European CRE isn’t out of the woods yet

Our view is that European commercial real estate (CRE) is not out of the woods yet, but things are looking better than before the summer.

What you will learn:

  • It is no surprise that we expect offices to be the worst-performing sector in Europe with low double-digit value declines. Residential is next, given the mathematical impact of outward yield shift on low yields, although rental growth prospects remain healthy.
  • There are five key headwinds that will weigh on a quick recovery: tight credit conditions, rock-bottom sentiment, high debt costs, inadequate risk premia, and stagnant economies.
  • A quick bounce back for values looks unlikely next year. Given the extent to which rates have risen and the gradual transmission of those increases to the market because of fixed rates with differing maturity timings, even if the European Central Bank starts to cut policy rates next year, the effective interest rate paid by the market will keep increasing.
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