- The sectors with the greatest potential for 2024 are industry and logistics, as well as multi-family construction. Offices have dropped to the third place. Investors want to implement new strategies in each of these sectors.
- ESG requirements are increasingly becoming an indispensable element of the investment decision-making process.
- Major European capitals, larger and characterized by higher market liquidity, dominate the locations chosen by investors. In 2024, Munich, Madrid, and Amsterdam will join the top ones – London, Paris, and Berlin.
According to the report titled “Global Investor Outlook 2024” published by Colliers, in the EMEA region (Europe, Middle East, and Africa), tough market conditions will persist until the end of 2024. However, there is a glimpse of stabilization in interest rates and a reduction in price expectations disparities between sellers and buyers. Lower investment activity has hampered the price equilibrium process due to the limited number of transaction data. Investors are still seeking stability. They believe that in the coming year, industrial-logistics sector, and multi-family construction hold the greatest potential.
London, Paris, Berlin, Munich, Madrid, and Amsterdam will be attracting the most interest from investors for 2024. The UK saw the fastest price correction, resulting in the strongest increase in investment activity in 2023. Germany ranked second. Further activity will likely emerge in the first half of 2024 as disparities in price expectations between sellers and buyers diminish.
– “We also expect a gradual return of liquidity in Poland starting from the end of the second quarter of 2024. Initially, investors from the Central and Eastern Europe region will become active, continuing their strategies of expanding portfolios in logistics as well as the office sector. Traditional Western European capital will start to take our market seriously only in the fourth quarter of 2024,” says Piotr Mirowski, Senior Partner in the Investment Advisory Department at Colliers in Poland.
There are still opportunities present since difficult circumstances are forcing companies to raise capital through sale and leaseback transactions. Additionally, real estate funds are under redemption pressure. Moreover, a record percentage (25%) of surveyed investors are implementing sale and acquisition strategies that take ESG requirements into account – a rise from 10% just two years ago. As a result, a wave of disposal and asset value enhancement opportunities is appearing in the market. Investors are raising capital to transform them into more eco-friendly properties.
“We hear from investors that stability is key for them. It is anticipated that higher interest rates will stay with us longer to combat inflation, hence expectations for capital markets are moderate. Greater certainty combined with price correction would allow for more transactions next year. The best-positioned will be investors who are ready to seize emerging opportunities,” says Luke Dawson, Head of Capital Markets globally and in the EMEA region at Colliers.
Joining forces
In 2024, there will still be high demand for all segments of the industrial-logistics sector. Limited supply of standard products provides solid support for valuations. This is turning an increasing number of investors’ attention to specialized subsectors related to the evolution of e-commerce and supply chains, including refrigerated and dark warehouses, light industry, and manufacturing. Furthermore, protectionist industrial policy and rising energy costs will continue to encourage activity relocation to home countries and neighboring states.
“Many investors believe that industrial and logistics facilities provide greater stability and growth potential, given their strong fundamentals and structural factors. Amid fewer lenders and higher financing costs, we are observing investors pooling funds, establishing partnerships, and forming joint ventures with partners who have experience in specialist markets or subsectors,” says Damian Harrington, Director of Research for the EMEA region, and Global Capital Markets Research at Colliers.
Attractiveness of the “residential” sector
The housing sector has also proved more resilient and maintained the interest of funds. Investors predict that the imbalance between supply and demand – caused by population growth and issues with housing availability and affordability – will support this sector in the near future. Many companies are still eagerly investing capital in alternative housing assets such as student or senior housing, tied to fundamental demographic trends. The growth potential offered by emerging Build-to-Rent properties is also higher as generally high prices and mortgage interest rates prompt couples, students, and people entering the labor market to rent homes instead of buying them.
Improving performance of the best offices
Despite initial forecasts, there is still a demand for offices. However, European investors are leaning towards high-quality spaces and opportunities to increase asset values through renovations and adjustments to changing tenant and employee needs. A Colliers survey revealed that nearly 80% of investors expect sustainable development-certified offices to be more expensive, with 65% believing that the price difference in the EMEA region will be higher than 5%.
“The availability of premium quality spaces (with net zero/ESG compliance) in good locations will remain limited. Meanwhile, the value gap between the best and the rest is likely to widen further. This should lead to increased demand for renovated facilities and reap greater benefits from greener assets. The refurbishment and repurposing of buildings to meet sustainability criteria or to serve a new purpose will be a significant driver of activity next year and beyond,” adds Harrington.
“The path to recovery in the market will be bumpy, with disparities appearing across various sectors globally. Similar trends are observable in the hotel and retail sectors, where budget segments are faring well as inflation-hit consumers strive to control costs. On the other hand, luxury segments are supported by a wealthier client base. The unremarkable mid-range segment struggles to attract investor interest unless it is heavily discounted. In a rapidly changing environment, a deep understanding of individual markets and asset classes is crucial to investors’ value generation strategies,” concluded Dawson.
