As a result of the ECB rate hikes, the European real estate market is experiencing challenging times. In particular, there has been a noticeable slowdown in investment inflows from other countries, and property prices are decreasing in many countries. However, as statistics show, the yield level has remained roughly the same. BNP Paribas RE experts forecast that the European real estate market will start to recover by mid-2024.
From the second half of the year, investors will be able to adapt new strategies to the existing financial realities.
Now, a bit of statistics. The level of real estate investment in Europe is currently the lowest in the past 10 years. Among the top five markets, Spanish real estate ranks fourth at 3.8 billion euros (-41%). The UK leads with 21.3 billion euros (-52% year-on-year), followed by Germany at 9.8 billion euros (-68%) and France at 7.8 billion euros (-42%). Italian real estate has suffered the least with 2.1 billion euros (-62%).
Although the decline in investment level is more pronounced than during the 2008 financial crisis (-71%), overall it is likely to be less significant as market recovery is expected soon.
Current Situation in the European Real Estate Market
Crisis Overview. The ongoing crisis in the European real estate market is characterized by price stagnation rather than a liquidity shortage, as was the case in 2008. Most property buyers in Europe are currently reluctant to commit to immediate returns due to increased financing costs. Many countries have also imposed significant restrictions on renting out properties, particularly affecting office spaces, logistics facilities, and luxury real estate.
Market Dynamic. Sellers are not inclined to significantly lower prices, leading both buyers and sellers to adopt a wait-and-see approach. This is compounded by the noticeable rise in mortgage costs across Europe.
Analysts' Insights. According to analysts at BNP Paribas Real Estate, the crisis is in its final stage of decompression. Evidence for this includes the current yields in 16 key EU countries: the premium segment yields 3.9% for retail and 4.4% for logistics, which are 5 and 90 basis points higher than the same period last year, respectively. Office yields average 4.3%, up 110 basis points.
Future Projections. In 2024, logistics and residential real estate are expected to lead the market, driven by significant increases in rental rates and demand in these sectors.
Housing Prices in Europe
In the first quarter of 2024, the number of real estate transactions in Europe decreased by 10.7% compared to the same period last year. There has also been an average decline in asset values by 2.1%. The most significant decrease was observed in Germany (-7.8%), followed by Luxembourg (-5.6%), Finland (-5.2%), Sweden (-4.4%), and Denmark (-4.0%). These countries also saw the largest decline in the number of transactions over the past two years.
When analyzing the real estate market by cities, most markets except Rome and Brussels are significantly overvalued. Consequently, housing and commercial property prices are falling in 20 out of 28 key EU cities. The steepest price drops are in Frankfurt (-16.2%), Copenhagen (-12.7%), Amsterdam (-12.7%), Brussels (-10.4%), and Munich (-10.1%).
Southern European cities like Vienna and Warsaw have been less affected by market changes, as prices in these areas have yet to adjust to the shifts and continue to rise. However, this trend is expected to reverse by the end of the year.
In the coming years, housing and commercial property prices in Europe are expected to decrease slightly. Housing prices are projected to fall by 9.5% in the Netherlands, 6.8% in Germany and France, 5.9% in the United Kingdom, 4.4% in Spain, and 2.9% in Italy.
Real Estate Market Trends in Spain for 2024
Spain is expected to continue attracting foreign investors in 2024 due to its favorable climate, well-developed social infrastructure, and relatively affordable property prices.
Key Influencing Factors:
- Internal and External Migration. Both domestic and international migration contribute significantly to the demand for housing in Spain.
- Growing Housing Demand. Increasing demand for housing is a major driver of the real estate market.
- Government Support. Supportive government policies play a crucial role in sustaining market growth.
- Economic Stability. Spain's stable economy provides a favorable environment for real estate investments.
- Interest Rates. Interest rates also impact the market, influencing both local and foreign investment decisions.
Experts predict that demand for Spanish real estate will continue to rise, leading to price increases. Even in smaller, less popular cities, prices are expected to grow at a rate matching inflation. In more popular regions, property prices are forecasted to increase by 2-6%.
Where to Buy Property in Spain
Townhouses and apartments on the coast of Spain are the most popular real estate options. But those who prefer privacy, comfort, and solitude choose villas in Spain. They are in demand among retirees, tourists, and remote workers - digital nomads.
However, apartments are a more affordable and easier to maintain option. They are usually part of modern complexes where everything necessary for a comfortable stay is available. This is also a good choice for families who value safety.
In 2023, the most popular destinations were the Costa del Sol, Costa Blanca, and the Balearic Islands. Their success is due to their advantageous location on the coast, Mediterranean climate, developed infrastructure, and the hospitality of the local residents.
In 2024, further growth in demand for real estate is expected in the following cities:
- Marbella, Orihuela, Estepona, Benalmadena, Villajoyosa, and Torrevieja - for buying villas and a laid-back lifestyle.
- Mijas, Marbella, Fuengirola, and Malaga - for buying apartments and living with all the city infrastructure. These are also ideal destinations for job seekers.
You can also consider real estate on the islands.
Real Estate Market Trends in Portugal 2024
Commercial real estate investments in Portugal in 2023 continue to fall. According to official figures, the level of financial inflows will be 1.2-2 billion euros.
Office prices show a slight increase. This trend is mainly due to premium office space. They meet the ESG standard. By 2026, 296,000 square meters are planned to be put into operation. Currently, 61% of these areas are already booked.
The shopping areas of Portugal are popular in the tourist regions. In other cities, the market is stagnating or showing slight growth.
In the field of industry and logistics, the level of demand exceeds supply, so there is the most dynamic plus. Business needs logistics centers, data centers, container sites (including marine ones) and multifunctional buildings.
The hotel business continues to grow. In 2024, it is planned to build 55 complexes. Foreign investors prefer to buy real estate in them with a guaranteed rent.
Residential Real Estate in Portugal
Recently, single pensioners or pre-retirement age investors have become increasingly home buyers in Portugal. They do not need large and luxurious facilities, but the market has yet to respond poorly to changing demand.
When buying housing investors pay attention to the following:
- availability of infrastructure necessary for living;
- technical condition of the facility;
- Internet access (in many rural areas, internet access and digital services are not available);
- the value of the property.
Note. Construction companies dictate their own rules in the real estate market. Because of rising energy prices, Europe is undergoing a large-scale decarbonization programme. In case of excess pollution rates, owners will have to pay an additional tax from 2027. Thus, in order for investors to avoid this tax, developers have to use more expensive materials during construction.
According to official data, construction costs for the first quarter of 2024 increased by 2.5%. Moreover, there is a shortage of new facilities in the economy segment.
Now investors should focus on the purchase of real estate in the following cities:
- Lisbon;
- Porto;
- Setubal;
- Madeira;
- Faru (Algarve).
Almost all experts agree that the market will show moderate growth in 2024.
Real Estate Market Trends in France 2024
In 2023 the French real estate market had a record yearly decline of sales of 22%. Prices have fallen noticeably in densely populated areas.
Despite the resumption of lending by banks after the stabilization of rates, this is not enough to revitalize the market. According to FNAIM experts, sales will fall again by about 10% by the end of 2024. Around 0.8 million transactions are expected. However, there are several reasons to invest in real estate in France:
- The average quarterly growth was approximately 1.1%. In five years, the value of the purchased property will increase by an average of 23%.
- The local market has a high level of liquidity, which has not been affected by numerous global crises and pandemic restrictions – prices have fluctuated slightly but there has been no significant drop.
- Demand is steadily exceeding supply, as the local market is growing rather slowly. Construction of new residential neighborhoods is a rare phenomenon. There is no mass construction here, as in Egypt, Turkey, or the United Arab Emirates. Free spaces are limited, so both new houses and secondary markets are popular.
The most successful investments will be the purchase of an apartment or villa in Paris, Lille, Marseille, Lyon and other major cities. There are plenty of offers, and due to the fact that investors have chosen a standby position, sellers are prepared to give in good price.
Trends in the German Real Estate Market 2024
Germany showed a record decline in the number of real estate transactions in 2023: -57%. However, the situation is not so bad, there are prospects for development this year.
According to information from BNP Paribas, the German real estate market is recovering. Between October and December 2023, there was a significant increase in transaction preparation activity, which should contribute to an increase in volume in 2024. Given the likely acceleration of activity in the second half of the year, sales growth of 20% this year looks quite realistic.
In the fourth quarter of 2023, in cities such as Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf, prices for single- and double-family homes fell by 9% and for private apartments by 5.8%. In urban areas, the cost of housing decreased by 11%, and condominiums became cheaper by an average of 7%. In rural areas with few inhabitants, single- and twin-room houses were 6.9% cheaper and condominiums 2.8% cheaper.
At the beginning of the year, the amount of mortgage loans granted by banks to individuals increased slightly. According to the Bundesbank, housing loans amounting to around 14.7 billion euros were issued in January, the highest value since March 2023.
Thus, there is a high probability of the recovery of the German real estate market this year. At the moment it makes sense to invest in housing in the big cities of this country, while prices have fallen. This is where maximum growth will be achieved due to the availability of modern infrastructure.
Trends of Italian Real Estate Market 2024
In January 2024, the cost of secondary housing in Italy decreased by 0.2% compared to December 2023 and reached 1836 euros per square meter.
This may be due to the slowdown in the real estate market in the second half of last year, caused by the rise in mortgage rates. Prices are expected to remain at the current level or to rise slightly in 2024.
Trends of Real Estate Market in the Balkans 2024
In 2023 the real estate market in this region was active. The price of studios and apartments in coastal cities rose significantly in the first half of the year. This growth was attributable to a steady interest in real estate and a large number of sales transactions.
However, in the second half of the year, the market began to stabilize. Experts began to talk about falling demand, overpriced prices, and possible formation of a “bubble” in the real estate market.
Nevertheless, the market remains active and stable. Here are some key trends that will affect the real estate market in 2024:
- Prices are not expected to fall sharply in major cities. Real estate continues to enjoy stable demand. There is a good social infrastructure, many jobs, new residential complexes are constantly being built.
- Property prices are largely dependent on the prices of apartments in new buildings. Experts forecast growth of 5–8%.
- At resorts, prices may remain at the same level or increase slightly due to inflation.
- Demand for real estate will remain stable, despite a decline in interest on the part of Russian buyers. Their place is occupied by buyers from Israel, Ukraine, Poland, and the countries of the Balkan region themselves.
- You should not expect a lot of offers on the real estate market. The fact is that key investors (UK) have already broken up with their assets in the Balkans or, on the contrary, are waiting for a better time to make a deal.
- Quality real estate will be in demand in 2024. In the cities and resorts, the construction of new residential complexes and multi-apartment houses is continuing.
Experts argue that investment in real estate in the region will be very profitable. They are able to bring a good profit if the purchase is made in a tourist region for the purpose of renting.
For investments and rent you can consider two-bedroom apartments or studios in residential complexes near the sea. Usually, such apartments are rented in the summer. Urban real estate is suitable for long-term rental, and there is a demand for townhouses, one-room and two-room apartments.
Trends in the Baltic Real Estate Market 2024
In early 2024, there is a temporary stagnation in the housing market in the Baltic region due to interest rate fluctuations.
Today, many people prefer to rent housing rather than borrowing, and some simply cannot afford a mortgage because of financial difficulties. In addition, some banks may refuse a loan. The rental market was quite active in the fourth quarter of last year.
As far as purchases are concerned, the start of the year was unexpected. As early as the first week, people are actively interested in buying housing, and about 40-42% of potential buyers choose real estate without using credit. According to Latio, only 30% of home buyers could do without loans a year ago, indicating a decline in interest in mortgages. However, it is possible that interest is beginning to rise as interest rates on loans have stopped rising and are expected to fall in the future.
Here are the main trends in the Baltic real estate market:
- It is forecast that by 2024, the volume of the real estate market in the Baltic countries will be $0.94 trillion. The residential segment is expected to dominate the $0.75 trillion market in the same year.
- Annual market growth is projected at 3.53% between 2024 and 2028, leading to an increase in market volume to $1.08 trillion by 2028.
- Compared to the rest of the world, China is projected to have the highest value of the real estate market at $135.70 trillion in 2024.
- The Baltic real estate market is facing increased demand for affordable housing due to population growth and urbanization.
Despite affordable prices, Russians are afraid to buy real estate here because of the anti-Russian attitudes of the authorities and some radical-minded citizens.
The Real Estate Market in Scandinavia
Scandinavia is characterized by a high level of development and a good selection of offers. However, since February 2022, there has been a deep depression in the housing market in the region. There is definitely a shortage of buyers. As a result, sellers have to significantly lower the prices of their properties if they want to get the money faster.
It should be understood that foreign investors are more interested in the primary market, but those willing to buy real estate are few. This is due to the harsh climate and fairly high prices. Moreover, the yield is relatively small. In this regard, most investors consider other countries in Europe, Turkey, Northern Cyprus or Asian countries for investment.
According to official data, the real estate market in the Scandinavian countries has almost reached its bottom. Experts note a record decline in the last 30 years. The government expects that lowering mortgage interest rates will boost demand, resulting in more transactions.
If you want to buy an apartment or villa in another country, you should contact the site manager. He is ready to provide the necessary assistance in the choice of the object and provide legal support. All communication is in Russian, but our specialists are well acquainted with the specifics of the legislation in different countries of the world. Thus, you cannot worry that the transaction will be carried out legally and will be able to meet your needs and financial possibilities.