Aerial view of the roof gardens at Gasholder Park in Kings Cross, London.
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The UK looks poised to lead a European property revival this year as international investors pour capital back into the region’s strained property market.
An expected drop in interest rates and modest economic recovery will boost inflows from foreign investors looking to capitalize on “increasingly attractive price levels”, new research from an international property firm Savills suggests.
American, Israeli, Japanese and Taiwanese investors are set to lead that charge, spearheaded by a 20% rebound in property investment activity in 2024 as they pump cash into Britain, Germany, Spain and the Netherlands, according to the survey.
“Certainly, it looks like we’re over the worst and we’ve got some creep for the recovery,” Rasheed Hassan, head of global cross-border investments at Savills, told CNBC.
“The UK is one of the most discounted markets,” he added, noting that it has moved “hard and fast” but that its fundamentals – namely a deep market, easy accessibility and limited domestic competition – remain solid.
European real estate revival
Britain is ranked as the leading European destination for cross-border investment in CBRE’s 2024 European Investor Intentions Survey, with investors pointing to falling interest rates and high return potential. Germany, Poland, Spain and the Netherlands followed. London was named the most attractive city, followed by Paris, Madrid, Amsterdam and Berlin, according to the survey.
“London is one of those few cities that has consistently demonstrated resilience in the face of difficult economic headwinds and remains an important focal point for global capital,” said Chris Brett, managing director of CBRE’s European capital markets division.
The UK is now forecast to attract a third – or about $13 billion – of outbound investment in 2024 from the US alone, according to Knight Frank estimates. Germany, Spain and the Netherlands are set to be the next biggest beneficiaries of US cash.
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It’s a tough year ahead for real estate in 2023 as higher interest rates pushed up borrowing costs and weighed on investment sentiment.
Global cross-border real estate investment totaled 196.3 billion euros ($212.9 billion) during the year, down 40 percent from the five-year average, according to data from Real Capital Analytics cited by Savills. The decline was sharper in Europe, the Middle East and Africa (EMEA), where inflows were 59% lower. This compares to a 56% decline seen in the Americas and a 12% decline recorded in Asia Pacific.
A total of €65.2 billion ($70.6 billion) was invested in continental Europe in 2023, the majority of which came from intra-European cross-border buyers, mainly in France and Spain. Less than half (40%) came from outside the continent – the lowest share 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 leadership position as the main destination for cross-border investment over the next 12 to 18 months,” Savills said in its note.
Beds and sheds
Beds and sheds – or housing and storage – are expected to be the biggest winners from the overseas cash infusion in 2024.
This year for the first time, logistics and residential real estate overtook office as the preferred asset class for overseas buyers, according to CBRE research. More than a third (34%) of investors expressed a preference for logistics and 28% for residential, compared to 17% who preferred offices.
It comes after office transactions fell 71% from the five-year average in 2023, according to RCA data, amid concerns of a wider commercial property downturn.
But Savills’ Hassan said there were still options for “opportunistic investors” looking to take advantage of big discounts on office and retail space.
“Strangely, we hear statements [from investors] we would like to invest in offices at this time. Looking ahead, I think there will be less negativity around offices,” he said.