According to MSCI PEPFI Balanced Funds Index[1], value decrease of real estate assets located in Europe is slowing down. The total return (including capital return and rental income) even became positive again in the first quarter of 2024 for the first time since mid-2022. In this new cycle, we forecast that a bottom in capital value could be reached by the end of 2024.
However, the data presented above are averages and hide very different realities: in some countries and for specific real estate asset classes, total return for the first quarter of 2024 is clearly positive (e.g. Logistics and Residential in the United Kingdom at respectively +3.9% and +2.5%) while it is negative for others (eg: Logistics and residential in Sweden at -2.7% and -6.3% respectively).
By comparing the index of listed European property companies (FTSE EPRA Nareit Developed Europe Index) and the change in the values of real estate properties in Europe (extracted from the MSCI Pan-European Property Fund Index), we can see in the graph below that real estate property values follows real estate listed values with a lag of approximately 12 months. Since the end of 2023, we can observe an increase in the shares of listed real estate companies (low point reached in October 2023). We can therefore expect a rise in physical real estate values from the end of 2024.
In conclusion, by studying change in building values over recent quarters, we see positive signals of recovery in values in specific sectors or locations. The low point of average properties values could be reached by the end of 2024. We could consequently expect a recovery in 2025 in many sectors and location.
