UK: New research from CBRE is predicting higher investment allocations to European living sector assets over the next 12 to 18 months.
The prediction follows a 64 per cent q-on-q rise in Q2 2024 for the living sector in Europe. Stabilising interest rates and expected growth in capital values have led to an increase in liquidity for the first time since Q1 2022.
The UK attracted 36 per cent of capital in H1 2024, up from an average of 17 per cent over the past eight years. Spain is recorded an 8.2 per cent share in H1 2024, ranking third in investment allocation behind the UK and Germany. The Netherlands has shown a strong recovery in terms of investment volumes, mainly in terms of income-producing assets due to an emerging number of investors adopting a privatisation strategy.
Jeremy Eddy, head of European living at CBRE, said: “The first half of 2024 marked an acceptance of new pricing in the market with net initial yields remaining unchanged since March. This stabilisation of residential values is increasingly viewed as a signal to enter or re-enter the market when coupled with the lack of future supply and consistent tenant demand. Based on the number of investment processes currently being initiated and signpost transaction already completed, we’re anticipating an upward trend in investment activity to continue throughout the second half of 2024. An increasing number of investors are mindful of not missing what could be an attractive investment window. Partly for this reason, we expect more liquidity to become available in the market before end of year, which should flow into the growing array of investment opportunities.”
Frank Verwoerd, European thought leadership lead, living, at CBRE, added: “Although policy rates are expected to fall further, there is anticipated to be a lag before net initial yields begin to decline. A large part of the current momentum is driven by investments in income-producing assets – especially in Continental Europe – rather than in new developments, with this trend largely down to the lack of new development schemes on the market. We maintain that living will become a bellwether of the commercial real estate market in the coming years.”
Looking ahead, CBRE says a rise in living capital values is also likely, driven by higher rents in European cities. Due to the increasing demand, combined with limited supply growth, the average rental growth across European cities is expected to be around 2.8 per cent per year over the next three years. This is above expected inflation and also above the annual expected rental growth on the European office market (2.3 per cent) and European logistic market (2.3 per cent).
