European investors in pricing phase

Fifty percent of European real estate investors are sticking to their investment strategy despite the marked rise in interest rates.

That is the finding of a recent survey by Union Investment of 150 property companies and institutional real estate investors in Germany, France and the UK. By contrast, 39 percent of respondents intend to invest less in real estate in the coming 12 months.

“The long era of ultra-low interest rates ended abruptly at the start of the second quarter. Naturally, this also affects the real estate markets. In theory, a combination of rising interest rates and declining demand should cause real estate prices to fall significantly. But that has not been the case across the board, at least up to mid-2022. European real estate investors are evidently still in a pricing phase,” says Olaf Janßen, Head of Real Estate Research at Union Investment. The study indicates that returns on existing stock remain stable despite interest rate hikes, rising inflation rates and increases in construction and energy costs. A total of 37 percent of the real estate investors surveyed expect to see returns of 2 to 3 percent on their existing stock over the coming 12 months, with 32 percent even anticipating growth of between 4 and 5 percent. 

However, according to the survey, more than half the participants will not achieve their yield targets in the next three years. Uncertainty about the future direction of interest rates, energy costs and the economy is dampening sentiment among real estate investors. The Real Estate Investment Climate Index is down in all three countries. The mood in France has deteriorated the most: here, the barometer dropped by 8.8 points to 60.3 in the first half of 2022.

Title image: Beach Motel/Christian Perl

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