European commercial property markets offer significant opportunities – Germany and the United Kingdom are in focus. The ‘Investment Atlas 2024’ by Cushman & Wakefield, one of the world’s largest real estate consultancies, has analysed recent developments and long-term trends across 30 European markets, including key countries such as Germany, the United Kingdom, France, the Netherlands, Spain, and the Nordic countries. The analysis focuses on the primary sectors: office, retail, logistics, residential, and hotel. It is based on a wide range of market data, which is used to identify potential opportunities and risks for investors.
The European commercial property markets have experienced a phase of price corrections since 2022, driven by rising interest rates and economic uncertainties. These developments led to a significant decline in transactions and a temporary reluctance to invest. However, the Investment Atlas 2024 indicates that the market is now stabilising and presents significant investment opportunities.
The report analyses markets in the office, retail, hotel, living, and logistics sectors, and the Fair Value Index evaluates the current attractiveness of property prices in relation to long-term yield expectations. It indicates that 84 per cent of prime markets in Europe are currently undervalued, meaning market prices are below what is considered fair value based on the underlying economic data. Recent price adjustments are a direct result of the rising interest rate and economic volatility. In addition, the TIME Score Index, developed by Cushman & Wakefield, concludes that all sectors, except the office segment, are currently in an ideal investment position ('sweet spot'), with the office sector soon expected to reach this position.
Two main factors are influencing this development: firstly, the sharp rise in interest rates has increased financing costs for investors, which has put pressure on market prices. Secondly, the consumer climate is now stabilising and demand is growing, particularly in the retail and logistics sectors, which enhances the attractiveness these markets.
All market segments in Germany are classified as undervalued
Following a comprehensive reassessment of the property markets in recent months, all market segments in Germany are classified as undervalued. This presents attractive investment opportunities for investors, particularly in the office, retail and logistics sectors, where market yields have risen by an average of 149 basis points since 2021.
Tina Reuter, Head of Germany at Cushman & Wakefield: ‘Germany currently offers the greatest opportunities in the prime segment, as the decline in valuations provides investors with attractive entry conditions. We expect that, over the long term, this could pay off with capital value increases as the market gains further momentum.’
The German office market also shows particular potential, with yields rising by 222 basis points between 2021 and 2024, marking the strongest growth across sector. While a clear turning point is not yet in sight, the recent decline in financing costs has created a positive momentum.
Simon Jeschioro, Head of Capital Markets & Investment Advisory at Cushman & Wakefield Germany, explains: ‘The current environment offers a timely opportunity to enter the German property market. With the low yield levels and the potential for rental growth, the conditions are promising for investors.’
The retail segment is experiencing a renaissance, as the number of undervalued markets has increased compared to Q1 2024. The combination of attractive pricing levels and improving consumer conditions positions retail sector for growth. Germany and the United Kingdom, the largest markets in the region, lead in terms of attractiveness and investment potential. In addition to liquidity and expected returns, refinancing needs and decreased interest rates are crucial drivers that reinforce Germany’s position as a top location for capital market opportunities.
Cycles in the property market and purchasing opportunities in Europe
Data from Fair Value Index up to 2000 shows that, historically, the shift from ‘underpriced’ to ‘overpriced’ takes an average of 27 quarters, or approximately 6.7 years, which reflects the typical duration of a real estate cycle. Markets generally move from ‘underpriced’ to ‘fairly priced’ within 10 to 12 quarters.
Earlier this month, Cushman & Wakefield announced that the TIME Score Index, a companion product to the Fair Value Index that identifies the ‘when’ to the ‘where’ of the latter, showed all European property sectors at the inflection point and present attractive buying opportunities. Bringing these two products together, the Investment Atlas report also examines European markets from an investment strategy perspective, as the real estate industry continues to adopt to ongoing changes in behaviour, culture, and technology.
Markets with the greatest potential.
Cushman & Wakefield used a framework including the recovery potential of the markets, their scale and liquidity, as well as transaction drivers such refinancing needs, the speed of interest rate cuts and the level of political risk, to identify the markets with the greatest investment opportunities.
The UK and Germany, the largest markets in the region, led in these variables. France offers high liquidity but less immediate pressure for transactions, while other larger markets such as the Netherlands, Spain and Sweden have good recovery potential as interest rates fall. Italy, Belgium, and Ireland were also identified as relevant markets thanks to repricing and refinancing, while the current economic outlook for Poland and other CEE markets supports a good recovery.
United Kingdom and France: stabilisation after price corrections
The United Kingdom also has an attractive investment climate, with 89 per cent of markets undervalued. In particular, the office and retail property markets have experienced significant price corrections, providing investors with favourable entry points. Here, it is primarily the uncertainty following Brexit that has influenced the market, but the stabilisation of bond yields and improved consumer sentiment are leading to a slight recovery.
France is also showing positive signs: 88 per cent of prime markets are undervalued, attributed to both price corrections and improvement in economic conditions. Paris and other major cities remain particularly popular investment destinations.
Europe’s markets are making a coming back
The Investment Atlas 2024 clearly shows that the European property markets are in a phase of recovery, presenting numerous opportunities for investors. Stabilising financing conditions and the price corrections of recent years have created attractive entry opportunities, especially in undervalued prime markets such as Germany, the United Kingdom, and France. The logistics and retail sectors currently offer the most promising prospects for capital growth.
‘Tailoring strategies and focusing on markets and sectors that stand to benefit from the market correction and the impending upswing is essential for investors,’ summarises Tina Reuter.
Fundamentals of the Investment Atlas 2024
The data in the Investment Atlas is based on the company's own core instruments TIME Score, Fair Value Index and Debt & Strategy, which have assessed the attractiveness of investment opportunities in the markets analysed.
- The TIME Score analyses the timing of investments, providing a precise assessment of when the market is in transition and when it is advantageous for investors to enter. It is based on cyclical market movements, indicating when stabilisation or an upswing is likely. The results in 2024 suggest that all European real estate sectors are at a turning point, indicating that investors now have the opportunity to act during the early stages of an upswing.
- The Fair Value Index is a key assessment tool that analyses the relative price attractiveness of property markets in relation to their long-term yield potential. A High Fair Value Score indicates that markets are undervalued and may therefore offer higher returns when prices normalise again. According to the index, 84 per cent of European prime markets are undervalued, presenting a significant opportunity for investors. Germany, the UK, and France, stand out in particular, where price corrections have been particularly pronounced.
- The Debt & Strategy component refers to the financing situation and the strategic realignment of investors in the light of the high interest costs. In the current market environment, which is characterised by high debt costs, investors must weigh whether to rely more on equity or adjust their debt structure. The study shows that capital availability is once again increasing, which indicates a normalisation of financing conditions.
The entire report can be accessed here.
