The Lighthouse H1 2024

2023 was a pivotal and challenging year for the real estate market which faced many issues: a decrease in global capital, fundamental changes in working and living patterns, high interest rates, a fall in prices for all property types, a wariness from investors and a slump in market liquidity with a 60% decrease as of Q3 2023. The misalignment between buyers’ and sellers’ expectations resulted in less transactions and significantly impacted the market activity.  

However, the outlook looks quite different. Throughout 2024, real estate investors will have more opportunities to implement new strategies as they will have a clearer picture on price adjustments and on the direction of the monetary policies.

Real estate fundamentals are still robust and megatrends will continue to influence occupier demand and to have an upward pressure on rents.

Investors should gravitate towards property types poised for growth in the next 5-10 years. These primarily include the living segment (apartments, senior housing, healthcare), buoyed by demographic shifts and an ageing population; logistics facilities, fueled by the relentless rise of online shopping; and leisure properties like hotels, where the post-pandemic recovery presents attractive return prospects. The office sector will also continue to attract investors, with a larger spectrum of strategies. Core investors will be focusing more on CBD offices, with returns mainly driven by the scarcity of supply and a strong rental growth. Value-add investors will have interesting opportunities, either in secondary locations or on stranded assets, to create values through asset management.

“This report explains that the global economy has proved resilient and European countries have avoided the predicted recession in 2023. This year, we should see a gradual recovery, due to different factors such as: a lower inflation, strong labour markets, an increase in wages, investment related to the green transition… All this will positively impact the real estate market and create new opportunities for investors” comments Laurent TERNISIEN, Deputy Head for BNP Paribas REIM.

1. Reinvest capital in its portfolio to reposition itself for the next cycle
   This year will be one of action: refinance, recapitalise, reduce emissions, refurbish, recycle capital, and rebalance the portfolio. The action plan for an investor’s existing assets could take more than a year, but in the end, investors can have a portfolio well positioned for the next cycle.

2. Polarisation is next, not an orderly recovery
   There isn’t one turning point by country or property type. Occupier trends – such as employee preferences to work remotely or in the office – occupier fundamentals, and environmental factors dictate the winners and losers within each property type. Importantly, the higher concentration of default and distress among the weaker assets would further exacerbate the extent of polarisation in 2024. This would be most acute in office markets with high vacancy rates.

3. It is a good time for value-add investment
   We expect the polarised repricing by building quality to create an ideal environment for investors looking to buy and improve buildings or change their use to something more relevant to its local community. The goal of making the current real estate stock more sustainable, therefore, could be spearheaded by the return of investors willing to take on more risk in exchange for enhanced returns, and could serve to curb expensive and carbon-intensive construction.

4. Real estate can diversify multi-asset class portfolios
   Investors typically invest in real estate for income, inflation hedging and diversifying from equities and fixed income. Diversification has become especially important, as equities and fixed income markets became highly correlated as interest rates rose. European real estate has also consistently delivered steady income returns and income growth in response to inflation. The case for investing in European real estate in 2024 is strong.

5. Real estate investment trends could diverge between two categories
   This year could see the return of the largest investors building exposure to certain property types through pan-European portfolio deals and acquiring companies. They have the sophistication to invest in niche property types and real estate with exposure to the underlying operator. Meanwhile, smaller, domestic investors may be comfortable with their home bias, but look for more bespoke allocations by property type. Some would still expect offices to be their main exposure, while others might seek a new approach.