LONDON--(BUSINESS WIRE)--Green Street, the preeminent provider of actionable commercial real estate intelligence and analytics, has released its 2024 Pan-European Sector Outlooks, a bundle of in-depth research reports covering commercial real estate. The Outlook reports provide a 360-degree view of the four core property sectors and can be utilized in conjunction with our Market Forecasts tool, which provides five-year forecasts for operating fundamentals and valuation metrics across various scenarios for the top 30 Pan-European markets.
The 2024 Pan-European Industrial, Office, Residential and Retail Sector Outlooks include supply/demand analysis, growth forecasts, valuation metrics, and NUTS3 and Market Grades representing long-term growth potential.
“Industrial and retail remain Green Street’s preferred sectors from a long-term hold perspective. Strength of the demand has been fueling industrial rental growth, whilst high incoming yield in retail bolster returns,” explains Marie Dormeuil, Head of European Market Analytics. “On the other hand, office remains a laggard for the fourth consecutive year. The observed yield expansion is not enough to offset the drag in fundamentals entailed by the bifurcation in tenants’ demand in favour of prime offices.”
Below are key takeaways from each sector:
- Industrial: Opportunities Plentiful
M-RevPAM growth – a Green Street proprietary metric that combines effective market rent and occupancy – is forecast to exhibit a more level-playing field than history has played out, and whilst there is a wide dispersion between key European cities, growth is positive across the board. There are signals that values have bottomed and yields are showing tentative signs of tightening. Institutional investors who have been hopeful for a lower price point and/or sought greater assurance on the operating backdrop now have their potential opportunity.
- Retail: Firmer Footings
Europe's downbeat consumer has kept spending despite the uncertain outlook. The pressure on consumer discretionary spend which has been well documented in news headlines has not (yet) necessarily translated into weakening tenant sales. Retailer occupational fundamentals are surprisingly sturdy and, moreover, given the value destruction experienced in the pandemic, several green shoots are emerging in terms of rental growth. Combined with the high initial yields on offer, potential unlevered returns are alluring for centres that are dominant in their catchment. According to Green Street’s Multichannel Desirability Index, which ranks markets in order of where a retailer (and landlord) is most likely to flourish, U.K. cities screen amongst the most favourable places for both ecommerce and physical retailers.
- Office: Crystal Ball Gazing
Key risks to the office sector include a softer macro-outlook (redundancies) and improved productivity due to remote working. The bifurcation in favour of 'A' space that began to assert itself post-pandemic accelerated in '23, eroding further fundamentals for 'B'-quality. Flight to quality by tenants should accelerate operational obsolescence of some of Europe’s more secondary office stock, leading to demolition or conversion to other uses. Developers are likely to find better risk-adjusted (i.e., lower environmental impact, lower development risk) returns on offer by pursuing major refurbishment and/or redevelopment works relative to ground-up new construction projects.
- Residential: More Cheery Than Gloomy
The positive long-term structural trends of solid demand (household formation and immigration) and lack of supply outweigh the headwinds facing the European residential sector. Meanwhile, the outlook for new residential construction is muted as the rise in interest rates has derailed development economics. Pan-European residential asset prices are down ~24% from mid-'22 peak and a bottom might be forming; signals from the fixed income and public equity markets are pointing to moderate upside to private market valuations for the first time after 18 months. Governments' appetite for rent controls and stretched affordability are near-term risks to watch out for.
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