Commercial real estate: New “blow” in Europe – 26% plunge in transactions – Economic Post

Deal-making for commercial property in Europe fell to a 13-year low in early 2024 as fading hopes of imminent interest rate cuts extended the slump in property markets, the FT reported.

Trading volume of 34.5 billion euros in the first quarter was 26 percent below the already slumping levels of the same period last year, the seventh straight quarter of decline, MSCI data released on Thursday showed. Fewer office buildings changed hands than in any quarter on record.

The commercial real estate market has undergone a brutal adjustment to much higher interest rates, which have depressed property values ​​and raised financing costs in a market that relies heavily on borrowing to finance deals.

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The hope

“After a very subdued 2023, there was hope that European property investment would start to recover in the first quarter of 2024,” said Tom Leahy, head of Emea real estate research at MSCI, adding that “However the ongoing and sometimes painful readjustment to the end of historically low interest rates means the market remains a difficult environment to trade in.”

The report followed last week’s US data which showed a 16% drop in deal volume in the first quarter from a year earlier.

Retreat

European office values ​​have fallen an average of around 37% since their peak in 2022, according to Green Street research. House and industrial property prices have fallen by about a fifth.

Although some owners have been forced to sell due to their debt pressures, many property owners are reluctant to take losses in what they believe could be the bottom of the market.

High-net-worth investors who can buy debt-free have fueled most of the recent deals – though generally limited to smaller deals.

What happened in London

London was “by far” the number one city for investment, MSCI said, despite a fall in trading volumes. The quicker price correction in the UK, relative to other parts of Europe, encouraged investors to return to the market in search of opportunities.

Two high-profile office deals – the £240m sale of 20 Old Bailey and a £110m administrator-brokered deal to sell 5 Churchill Place in Canary Wharf – collapsed during the quarter. However, this was taken by some in the market as a signal that sellers are hoping they can expect better prices after the Bank of England cut borrowing costs, adding: “Statistically the first quarter was pretty dismal,” said Nick Braybrook. , head of London capital markets at Knight Frank, adding: “But it doesn’t really reflect what’s happening out there. It’s quite a different feeling.” He said private equity groups are starting to follow family offices into the market, which will lead to more deals over the next six months.

Various

MSCI assessed that the prices sellers are willing to pay are still often lower than what buyers would accept, noting that “Many segments of the market have not appreciated sufficiently to generate more interest from buyers,” MSCI said .

Hotels were the only segment of the market that recorded an increase in transactions. The sector has experienced a post-Covid recovery in travel which has boosted trade.