The majority of European real estate investors (55 percent) currently expect an annual return of 3 to 5 percent on new real estate investments. That is the finding of a recent survey of 134 property companies and institutional real estate investors in Germany, France and the UK by Union Investment. Of these, 25 percent calculate a target return of 3 to 4 percent, 30 percent 4 to 5 percent per year. One-fifth of respondents (20 percent) set an annual return of over 6 percent for new investments.
“The pricing phase on the European real estate markets is still in full swing. Whether the calculated returns can also be achieved in this way remains to be seen. We observe that the price expectations of sellers and buyers do not yet match in most cases. No clear market evidence can currently be derived from the sharp decline in fragmented transaction activity,” says Martin Schellein, Head of Investment Management Europe at Union Investment. According to the study, the majority (60 percent) of European real estate investors currently expect it to take longer than twelve months for the transaction markets to pick up again. 37 percent expect the investment market to pick up significantly within the next twelve months.
Own return targets adjusted
There is no clear trend in the self-imposed return targets of the real estate portfolios of European real estate investors: 31 percent of the respondents have adjusted their targets downwards, 26 percent upwards. Meanwhile, 39 percent have not changed their self-imposed return targets to date. More than half of the survey participants (60 percent) indicate that they will still not reach their self-imposed return targets in the next three years.
Significant country differences in investment strategy
A sell-off on the European real estate markets is still not in sight. More than half of the real estate investors surveyed want to wait and see in the coming twelve months and hold their properties or even make new investments. In detail: For 25 percent of the survey participants, the strategic focus is on holding their properties, for 27 percent on buying. For 39 percent of the respondents, the focus of their investment strategy in the coming twelve months is on selling. Real estate remains an indispensable component in asset allocation: According to the study, around 67 percent of the respondents named the crisis resistance and value preservation function as the most important characteristic of properties.
However, the investment strategies differ significantly depending on the country. While in Germany (55 percent of respondents) and France (39 percent) the focus is more on sales in the coming twelve months, in the UK the investment strategy is on wait and hold (52 percent of respondents). Only 21 percent of the British investors surveyed are betting on sales.
Investment climate on the rise, but only in Germany
The sentiment on the European real estate markets remains subdued overall. The real estate investment climate index calculated by Union Investment in Germany, France and the UK also shows a rather mixed picture: While the barometer rose by 2.4 points to 61.3 in Germany, it fell in France and the UK. The mood in France deteriorated the most: the index fell by 2 to 59.3 points in the first half of 2023. In Great Britain, the barometer only slipped by a slight 0.7 to 59.6 points.
