Primonial REIM real estate convictions : 4th quarter 2023

After a slow year in 2023, 2024 will be a year of many challenges: challenges that are at the same time democratic, geopolitical, economic and financial.

The most striking aspect will be the 2 billion human beings who will go to the polls during the year in 70 countries, including the United States, the European Union, India and the United Kingdom, thus redefining the balance of power. For the time being, global growth is forecast at +2.9% for 2024, before a more dynamic recovery in 2025.

The outlook for 2024 in the eurozone is on the rise (+0.6%), driven by the reflux of inflation and the beginning of the downward cycle of key rates, before a sharp rebound in 2025 (+1.8%). As regards the main countries, the GDP of Spain is expected to evolve at +1.4% in 2024 and at +1.8% in 2025, that of Belgium at +0.7% and +1.4%, that of the Netherlands at +0.7% and +2.5%, that of France at +0.6% and +2.1%, that of Italy at +0.5% and +1.2%, and that of Germany at -0.1% and +1.5%.

The ECB’s strategy to tighten its monetary policy has partly achieved its objective with inflation that is resolving, since it went from +8.6% in January 2023 to +2.9% at the end of December 2023. However, among the economies of the eurozone, there are three major blocks: the first with countries that have managed to control their inflation (Italy, the Netherlands), the second block in which inflation is close to the average (Spain, Germany, France) and finally the last block, which continues to present inflation that is well above the average (Austria, Slovakia).

Since October 2023, the ECB has halted the quasiautomatic increases and opted for the stability of its rates considered to be at a sufficiently restrictive level to ensure a return of inflation to its 2% objective. The disinflation process reinforces the ECB’s expectations of lower rates in 2024. This already has an impact on the 10-year sovereign rates of the various European economies that are experiencing an expansion.

The wait-and-see attitude of investors has led to a freeze in the investment market due to successive increases in interest rates and the need to restore the real estate risk premium. A new phase has begun due to a stabilisation of the ECB’s key rates, which will quickly lead to the last adjustment of the process of reconstitution of the risk premium for real estate. The next step will be the beginning of the downward cycle of ECB key rates, which should be observed as early as 2024.

Due to the changing and uncertain climate, investors have chosen to be cautious in limiting their investments. The volume was low, with just over 145 billion euros in commitments for the whole of 2023, compared to 290 billion in 2022. A low point therefore seems to have been reached in 2023, which augurs well for a “2012” type scenario, with a thawing phase and a gradual increase in investment volumes in the coming years.

As for the main countries, real estate investment volumes rose to more than 37 billion in the United Kingdom (-47% over one year), 28 billion euros in France (-28%), 24 billion euros in Germany (-53% over one year), just under 9 billion euros in Spain (-43%), around 7 billion euros in the Netherlands (-60%) and 5 billion euros in Italy (-58%).

At the level of asset classes, diversification has characterised allocations in 2023. Office space thus remains in first position, with around 40 billion, or just under 30% of the market, followed by logistics and residential, with around 30 billion respectively (or around 20% of the market). The trade (26 billion) represents 18% of the market, hospitality 8% (12 billion) and healthcare 3% (5 billion).

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Sources of data: Primonial REIM Research & Strategy, Immostat, CBRE, Savills, BNP PRE, JLL, Knight Frank, MSCI, Oxford Economics, Eurostat, OCDE, FMI, Stabel, NSI, CZSO, DST, Destatis, Stat, CSO, Statistics, INE, INSEE, DZS, ISTAT, CSB, Statistics Lithuania, Statec, KSH, CBS, Statistik Austria, Stat Poland, INE, INSSE, Statistics Finland, SCB, SSB, BFS, ONS, STR, Operators