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The Sun Shines On Europe CRE With 2024 Pan-European Commercial Property Outlooks

After the past few years of choppy waters through volatile market shifts, we’re seeing a nice change of pace versus the tail end of 2023 in our latest Pan-European Commercial Property Outlook. In this blog, we’ll be running through the major insights we shared in our Pan-European Commercial Property Outlook webinar and maybe giving a hint or two into how you can leverage Green Street’s data to empower your own commercial real estate strategies. Leveraging this data across different sectors and markets can help you guide your strategy for the rest of ’24, and set yourself up strongly for an even better position in the years to come.  

If you want to cut straight to the point, you can watch the replay of the webinar itself by clicking the photo below. But if you’re a reader over a watcher, let’s dive in.

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As a whole, Europe is projected to do quite well in the CRE industry in ‘24. Breaking the Pan-European market into disparate parts, the Eurozone is even projected to outperform the UK and Nordics in certain sectors. In fact, it’s even projected to outpace the U.S. in ‘24. It’s no surprise the public market seems to be taking such an upbeat view of macroeconomic shifts.  

And with the private market bouncing off rising rent growth and occupancy rates, operating fundamentals look quite strong over the coming months. It does appear to be true that we are past the “troughing point” in terms of the returns we’ve been seeing over the past few years in the commercial real estate world.  

Speaking of rent growth, the overall M-RevPAM (a proprietary Green Street metric combining rent and occupancy) of the EU is trending strongly up from 3% into the upper 8%-9% range. This is well above inflation rates over the next years so strong returns can be expected if trends continue.  

Some sectors are obviously more promising than others, with certain sectors having low market dispersion along with their strong growth. But generally, we see rent growth slowly rising while occupancy stays at record highs, which should lead to some meaningful shifts in the status quo of the last few years.  

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All of the promising trends from above have led to some very big shifts in the NOI and cash-on-cash returns from the commercial real estate market. As you can see in the graph comparing pricing vs bids over the past several years, we saw an extreme stacking effect during the Covid Pandemic. While the EU pricing vs bid ratio opened up a bit post-pandemic, it really started to spread in the past few years as bids began to drop in 2023.  

Now, we’re starting to see the gap close again as pricing begins to decrease in comparison to rising bid averages. And given that the public market is no longer projecting a recession in '24 and NOI is generally growing, these rising bid rates are expected.  

Overall, you can see that the Pan-European market looks strong through the rest of '24. And many of these projected growth rates continue beyond the end of the calendar year, with the lowest growth rates still meant to meet inflation rates. Just to emphasize, the strongest sectors are projected to outpace inflation nicely.  

Our European Commercial Property Outlook webinar also covered some investor “fear factors” that have held the market back from growing. With real estate approximately 5% cheaper than fixed income investments, the promise of the market starting to bolster again is great news. Even with credit spreads compressing, there are plenty of other factors that show opportunity to join a growing market.  

*Here’s another little hint* - if you’re a direct investor operating in the private market, you might want to take a glance at the public market to see what REIT participants are doing there. Using the public market as a window can give you valuable insights into where to start (and where to continue) in the private market to take advantage of rising trends, as well as bail out of falling ones. Signs like these from the public market can be great signals towards private market performance. 

Keep in mind that these are only some brief teasers of the valuable data and insights our Head of European Research, Peter Papadakos, covered in Green Street’s ‘24 EU Commercial Property Outlook. If you want to dive deeper into the real insights, be sure to watch the replay at the above link and see just what you missed.  Or feel free to reach out to us to see how we can Green Street can show you how you can empower your strategies with CRE data, research, and news.

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