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Slow correction continues for European non-listed real estate in Q2 2023

Negative performance driven by decline in capital growth and sharper correction for Germany and France. But investor confidence likely to return, given expected taming of inflation.

20 September 2023, Amsterdam: Performance of the European non-listed real estate market was characterised by a continued, slow correction in Q2 2023. According to the INREV Quarterly Fund Index the total returns hit -0.47%. This was driven by a decline in capital growth which dipped to -1.24%, marking the fourth consecutive quarter of negative performance. This equates to an overall decrease of -11.58% over the last four quarters. However, the broader economic picture reveals some positive signs as inflation continues to decline, albeit projected to remain at notably elevated levels throughout 2023.

Correction led by UK and industrial and logistics sector as Germany and France play catch-up

The UK delivered the strongest performance – and the only positive result of all main geographies –with a total return of 0.08% in Q2 2023. This was driven by improved capital growth which rose to -0.97%, marking the UK’s first positive performance since Q2 2022. It also reflects the UK’s position in the vanguard of market correction across the European non-listed real estate industry, which has been helped by the stabilisation of capital growth since the start of 2023. The Netherlands followed the UK with a total return of -1.29%, a notable improvement from the -3.61% last quarter.

Contrastingly, Germany and France registered weaker Q2 performances in comparison to Q1, at -1.84% and -1.63%, respectively. Both countries were highly affected by the poor performance of their office assets, and continuously decreasing net sentiment towards offices.

As the ‘sick man of Europe’, Germany’s stuttering economy and negative GDP forecasts, have expanded the real estate correction, putting the transactional market into a standstill until further adjustments in pricing crystalise. Similarly, France has experienced a notable lag in valuations and a lack of transactions, so the latest sharp adjustment in Q2 2023 performance is a move in the right direction.

Industrial/logistics leads the correction into positive territory for the UK once again, with a substantial quarterly performance boost to 1.91% – far higher than the -19.70% seen in Q4 2022. In the Netherlands, the sector also hit a positive return of 0.19% for the first time over the same period.  German industrial assets just squeezed above the baseline at 0.05%. By contrast, in France the sector’s performance remained negative at -0.97%.

Office sector in decline across the board

Overall, the performance of the office sector experienced a decline, with returns decreasing and remaining in negative territory across the four main countries within the INREV Asset Level Index. Returns in the UK stood at -4.44% and -3.49% in the Netherlands, followed by -3.32% for Germany and -2.45% for France. Office assets across Europe are experiencing a challenging first half of the year given weak market sentiment and the current harsh economic conditions.

However, there is a significant degree of divergence and variable levels of risk, highlighting the widening disparity in performance between well located environmentally efficient Grade A assets and the more tertiary assets.

While sentiment for residential remains positive on a pan-European level, there is notable market polarity with signs of quarter-on-quarter improvements in the UK (up to 0.00%) and the Netherlands (up to -1.64%), but deterioration in France (down to -0.49%) and Germany (down to -1.67%). Similarly, retail performance improved for the UK and the Netherlands, and worsened remaining negative in France and Germany. The overall trajectory for this segment is nevertheless becoming more optimistic, as it remains in positive territory for the second quarter running, at 1.00% in Q2 2023 on a pan-European level.

Transaction volumes decrease

Compared to the long-term quarterly average, pan-European transaction volume was down by 38% in the second quarter of 2023, according to MSCI Real Assets. This marks a decline from the already low -30% below the long-term average reported in Q1 2023. There are multiple factors explaining the decrease in transaction volume, most notably that a lag between valuations and market pricing, meaning investors are sat on the sidelines. It is expected that transaction volumes will pick up once real estate prices have adjusted further.

The beginning of 2023 marked a clear shift in sentiment and investment plans as inflationary pressures across Europe were past peak, and price adjustments started to give hope for capital market conditions to begin to normalise.

Iryna Pylypchuk, INREV Director of Research and Market Information, said: “The latest Q2 2023 results confirm a continuing story of slow correction across the European non-listed real estate market as the lag in valuations and market pricing holds back investors’ decision making. There’s no indication of structural issues and the wider economic outlook should be cause for cautious optimism. As Europe gets a grip on inflation, interest rates begin to plateau and real estate valuations and market pricing correct, investor confidence and transactional volumes will improve, naturally. The key is recognising that the trajectory of recovery may differ widely not only across markets and sectors, but also across individual assets. This makes subsector and asset selection evermore important to the near to medium term performance.”




For further information, please contact:

Johlyn da Prato, johlyn.daprato@inrev.org  | +31 (0) 621397456

Justin St Clair-Charles, inrevteam@firstlightgroup.io | +44 (0) 7769 644 059

Josie Workman, inrevteam@firstlightgroup.io | +44 (0) 7460 325 392


Notes to Editors


INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for institutional investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe.

INREV has 505 members which include 130 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.

The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.