February 19, 2025

Housing Finance Development

It's Your Housing Finance Development

A Bright Outlook for European Real Estate

A Bright Outlook for European Real Estate

However, we are now seeing transaction volumes start to build. Buyers and sellers are moving closer on pricing expectations as a wide group of property owners come under more pressure to sell assets and financing availability improves. Those who borrowed in 2021 and 2022, face the prospect of refinancing buildings that are now worth less at higher rates. Some sources indicate there may be a €114 billion funding gap between 2024-2027.1 Those who cannot refinance are selling assets. Helpfully for buyers, financing costs have moderated by 60 basis points (bps) on the continent and 30 bps in the United Kingdom since September 2023, with banks now generally more willing to lend than a year ago.

Likewise, open-ended funds across both continental Europe and the UK are facing significant redemption requests. In a search for liquidity and given the difficulties in challenged sectors or locations, they are often offloading their most liquid assets first.

Where Do We See the Opportunities?

We see a sharp bifurcation across many sectors in Europe between the demand for sustainable, green, and efficient buildings and older, less efficient stock. We are focusing on developments and assets that are best-in-class both in terms of traditional metrics such as location and by sustainability standards. For example, we’re working on a joint venture that will bring a 200,000 square-foot sustainable building to downtown Manchester, along with a significant amount of public space. The first phase of the project aims to achieve net zero emissions in both construction and operation, and the building itself is set to be one of the most eco-friendly and energy-efficient buildings in the United Kingdom. We also plan to offset the remaining carbon emissions using carbon credits. The development is almost entirely pre-let at record rents for Manchester. In our view, these kinds of energy-efficient projects are more future-proofed against increasingly tight energy efficiency standards and volatility in energy prices and in line with changes in what tenants and the public expect and value.

We see attractive fundamentals over the medium term in our four preferred sectors—logistics, multifamily housing, student housing, and hospitality. These “sheds and beds” sectors all have supply constraints, strong demand, and secular tailwinds, making them a favorite among many investors. What we think will set some investors apart is the ability to access and execute deals through extensive relationship networks and deep, varied pools of capital.

We have been active in logistics over the last 12 months. Rental growth has slowed lately, but we expect it to return over the next 12 months. Vacancy rates within the prime logistics segment is extremely low (Exhibit 3) and we expect it to remain that way until at least 2028, due to higher development costs, higher capitalization rates, and regulators taking a stricter view of development for environmental reasons. Meanwhile, the longer term trends of increasing e-commerce penetration and nearshoring should support demand growth. We are focused on high-quality facilities in areas with durable demand and access to both power and labor.

EXHIBIT 3: Prime European Logistics Vacancy Rates

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