France and Germany lead the correction in European non-listed real estate performance

The correction in European non-listed real estate performance continues once more this quarter as returns hit -0.72% on a fund level and -0.39% on an asset level in Q3 2023. This is the fifth consecutive quarter of negative performance, adding to a continuous decline in transactional activity for European real estate.

Key highlights:

• The new INREV Consensus Indicator, a forward-looking diffusion index reported a headline reading of 40.8. Four out of the five subindicators, namely economic, new development, investment liquidity and financing, remain well below 50 this December.
• Negative performance is seen across the main countries, where France and Germany registered the lowest total returns of -1.40% and -1.08%, respectively, while the UK and the Netherlands also reported negative performance in Q3, at -0.29% and -0.12%, respectively.
• The industrial/logistic sector delivered a second quarter of positive total returns at 0.81%, its best result since Q2 2022, while retail also displayed a positive performance. In negative territory, residential followed closely while the office sector remains the weakest performing sector at a large margin for the second quarter in a row at -2.13%.
• On the sentiment front, the UK is once more leading in the net positive for the fifth consecutive quarter, while Germany faces continued headwinds due to a weak economic outlook and ongoing valuation delays. Notably, Italy and Spain have experienced a significant shift towards positive sentiment this quarter, aligning with the structural changes observed in Western European markets in recent years.
• Living segments remain favoured, as the residential sector exhibited the highest level of positive sentiment, followed by student housing, senior living, and hotel/leisure. Simultaneously, the industrial/logistics sector consistently maintained a positive sentiment, completing its fourth consecutive quarter in a net favorable territory.
• The outlook for European real estate saw a considerable decline in risk and return expectations by the close of 2023. These shifts underscore the challenging market environment and the anticipation of a substantial correction in the near future.

Download the Market Insights December 2023 report, the Consensus Indicator and the INREV Sentiment and Valuation Survey Q3 2023 Infographics below.