Property investors in Europe are pessimistic about the outlook for the sector in 2023 and predict that high energy prices and recession will lead to lower occupancy and rents, even in previously strong sectors, reducing profits and investment. a report prepared by PwC in association with the Urban Land Institute. Recovery in the real estate sector is unlikely before the beginning of 2024.

“The start of the war in Ukraine and its consequences are causing a new wave of pessimism among European investors in the real estate sector, after the exit from the health crisis briefly gave them confidence. Industry leaders expect 2023 to be a tough year as liquidity tightens, in a market where investment volume, rents and occupancy are all lower. Concerns about inflation, interest rates and economic development are growing compared to last year, when they already started to worry the business environment. Opportunities for growth and a good return on investment are still there, but the equation of what constitutes a good business has changed again,” said Francesca Postolake, partner at PwC in Romania.

The availability of capital for investment in 2023 reached its lowest level since the 2008 global financial crisis, with development activity expected to fall sharply after slowing in 2022.

Pessimism about the development of the market is also reflected in the low intention of respondents to buy real estate: 51% of survey participants expect to become net buyers of real estate in 2023, which is less than last year (59%). The data is even more pessimistic than in 2020, when 55% of respondents said they planned to buy real estate in 2021.

In addition to the general uncertainty about the near future, investors are also signaling other reasons for concern about the development of the sector. Thus, 92% of respondents indicated that their main problems are the supply of resources and the cost of construction for 2023, as well as for the next 3-5 years, in the conditions of a shortage of materials and labor, as well as inflationary pressure. Other concerns expressed concern economic growth in Europe (76%), interest rates (73%) and the development of the global economy.

However, 2023 could also bring opportunities for well-capitalized investors, both for acquisitions given the fall in valuations and for future developments, with land prices expected to fall and competition between developers to drop dramatically.

Evolution by sectors

The residential sector remains at the top of the favor as it is considered much more stable in terms of income than the commercial sector. However, soaring construction and labor costs are also weighing on homebuilders, limiting supply as demand remains strong.

It is not surprising that new energy infrastructure remains at the top of promising sectors amid one of the biggest global challenges – the transition to green energy. Next comes the life sciences sector (pharmaceuticals, food, biotech R&D, etc.) and data centers. Unlike last year’s edition, logistics fell in the overall ranking from third to eighth place, while at the same time there is an increased interest in a number of sub-sectors with a social component (homes for the elderly, social homes, etc.).

Top city: London remains in first place

The annual ranking of the most attractive European cities for real estate investment shows that investors will continue to put their money in Europe’s big cities, even though the outlook has worsened in all 30 cities analyzed in the report. For the second year in a row, London remains the leading metropolis in the ranking of investors’ preferences for 2023, Paris rose to second place, and Berlin fell to third position. In addition, all of the top German cities saw a decrease in scores due to their dependence on gas produced in Russia and the potential impact on the European economy.

The report “Emerging Trends in Real Estate 2023” was conducted by the Urban Land Institute and PwC among 1,038 respondents from 20 European countries.

Article supported by PwC Romania