The UK has retained its status as the top European cross-border investment destination, according to CBRE’s 2024 European Investor Intentions Survey.
The survey shows that European investors have the highest return expectations for the UK for the second consecutive year, followed by Germany and then Poland. Spain and the Netherlands completed the top five European investment destinations.
Despite ongoing inflationary pressures, the UK is in a stronger position than in 2023 and investment is forecasted to recover in concurrence with a fall in interest rates. Indeed, according to the survey, London is once again the most attractive city for cross-border investment, followed by Paris, Madrid, Amsterdam and Berlin. In Germany, investors now have a strong opportunity to enter the historically strongest investment market as pricing levels approach their bottoms after a tumultuous 2023.
‘London is one of those few cities which consistently demonstrates its resilience in the face of challenging economic headwinds and remains a major focal point for global capital,’ said Chris Brett, managing director, European Capital Markets at CBRE. ‘That being said, smaller markets, such as Poland, are emerging as strong investment targets with promising return profiles, as well as a resurgence of interest in the Southern European markets. Spain and Italy have both made strides to future-proof their economies with investment into green energy and digitalization, making them attractive options for forward-thinking investors.’
Survey responses indicate that momentum is starting to pick up in the European real estate investment market, with a notable uptick in sentiment. Buying and selling expectations are higher in 2024 than in 2023 and over half of the investors surveyed believe that market activity will return to levels seen before the rise in global interest rates by H1 2025.
In terms of real estate, 80% of investors expect allocations to the sector to remain the same or increase in 2024 with over 60% of investors demonstrating a preference for value-add, opportunistic or distressed asset strategies in 2024, the most since 2021. However, the tight lending conditions remain a major challenge for investment. Half of respondents stated that the widespread fall in capital values presents a challenge to refinancing, while the increased costs of servicing debt and lower Loan to Value (LTV) ratios are viewed as major impediments to investment by approximately three quarters of respondents.
For the first time, logistics and residential have surpassed office as the preferred European real estate sectors. According to the survey, 34% and 28% of respondents registered a preference for logistics and residential respectively, with just 17% signaling a preference for office. Of those investors planning to target offices, over half selected grade A office in a prime location. Responses from the survey also indicate that positive sentiment for prime offices is higher in Germany than most other major markets.
Two thirds of survey respondents are planning to pursue alternative investment in 2024. While student accommodation and senior living continue to be the most popular alternative asset types, interest is increasing for data centres, life sciences and healthcare-related assets.
Sustainability strategies have come under increasing pressure in a capital constrained environment and investors have had to adjust their strategies accordingly to maintain long-term profitability. However approximately 80% of investors who expressed a willingness to implement sustainability strategies indicated that they seek to retrofit existing buildings.
Raphael Rietema, director, Capital Markets Research, CBRE concluded: ‘It is clear from our survey that repricing expectations have stabilised compared with last year. While investors believe that downward pressure on pricing will continue in the near term, the results indicate that in some sectors price floors have begun to form. We are expecting investor appetite for real estate to pick up in the second half of the year, with riskier strategies prevailing as investors try to capitalize on market dislocation. Access to debt costs remain prohibitive but this should begin to ease when interest rates start to fall, providing a further catalyst for the market.’