An aerial view of the roof gardens at Gasoulder Park in King's Cross, London.
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The UK looks set to lead a European property recovery this year, as international investors bring capital back into the region's tense property market.
An expected decline in interest rates and a modest economic recovery will stimulate inflows from foreign investors looking to take advantage of “increasingly attractive pricing levels”, according to new research from an international real estate firm. Savills She suggests.
US, Israeli, Japanese and Taiwanese investors are set to lead the charge, driving a 20% rebound in property investment activity in 2024 as they pump money into Britain, Germany, Spain and the Netherlands, according to the research.
“Certainly, it looks like we are behind the worst and that we are facing a bit of a creep in the recovery,” Rasheed Hassan, head of global cross-border investing at Savills, told CNBC.
“The UK is one of the most heavily discounted markets,” he added, noting that it had moved “hard and fast” but its fundamentals – namely a deep market, easy access, and limited local competition – remained sound.
European real estate recovery
Britain ranked first as a European destination for cross-border investments CBRE European Investor Intentions Survey 2024, with investors citing its discounted prices and high return potential. It was followed by Germany, Poland, Spain and the Netherlands. The survey found that London was named the most attractive city, followed by Paris, Madrid, Amsterdam and Berlin.
“London is one of those few cities that consistently demonstrates its resilience in the face of difficult economic headwinds and remains a key focal point for global capital,” said Chris Brett, managing director of CBRE's European Capital Markets division.
The UK is now expected to attract a third – or about $13 billion – of 2024 overseas investment from the US alone, according to Knight Frank estimates. Germany, Spain and the Netherlands are set to be the next biggest recipients of US funds.
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This comes after a difficult year for real estate in 2023, as rising interest rates led to higher borrowing costs and affected investor sentiment.
Global cross-border real estate investment totaled €196.3 billion ($212.9 billion) over the year, down 40% from the five-year average, according to Real Capital Analytics data cited by Savills. The decline was most pronounced in Europe, the Middle East and Africa, where inflows fell by 59%. This compares to a 56% decline in the Americas and a 12% decline in the Asia-Pacific region.
A total of €65.2 billion ($70.6 billion) was invested in continental Europe in 2023, most of which came from buyers across European borders, especially in France and Spain. Less than half (40%) came from outside the continent – the lowest percentage since 2010.
However, this trend is expected to change as international institutions and individual investors return to the market as the European Central Bank and the Bank of England show signs of cutting interest rates.
“We expect Europe will likely regain its leading position as the top destination for cross-border investments over the next 12 to 18 months,” Savills said in its note.
Beds and sheds
Beds and sheds – or residential properties and warehouses – are expected to be the biggest winners from the external cash injection in 2024.
This year, for the first time, logistics and residential properties overtook offices as the preferred asset class for overseas buyers, according to a CBRE survey. More than a third of investors (34%) expressed their preference for logistics services and 28% for housing, compared to 17% who preferred offices.
It comes after office transactions fell by 71% against the five-year average in 2023, according to RCA data, amid fears of a wider decline in commercial property.
However, Savills' Hassan said options remained for “opportunistic investors” looking to take advantage of deep discounts in office and retail space.
“Surprisingly, we're hearing statements (from investors) about us wanting to invest in offices right now. Looking ahead, I think there will be less negativity around offices,” he said.
