What It’s About
While equities and bonds have shown signs of recovery, European real estate remains at cyclical lows, offering a rare investment opportunity.
Why It Matters
Real estate has faced significant challenges but now stands as a promising avenue for investors amid an improving macroeconomic environment.
The Context
Equity markets have rebounded after a tough start to August, yet economic risks persist. Bonds have rallied since May, lowering yields even as inflation concerns linger.
Alternative Investment
Real estate presents an attractive alternative, potentially one of the best investment periods for European real estate from 2023-2025, as it offers a rare chance to buy at cyclical lows just as market fundamentals begin to recover.
The Turning Point
The real estate market was severely impacted in 2023 due to rate hikes and the pandemic, affecting leveraged owners and investor sentiment. However, with interest rates now stabilizing and unlikely to increase further, the macroeconomic conditions are turning favorable for real estate.
Rebounding Sector
Unlike equities and bonds, real estate is yet to recover significantly from its lows. Nevertheless, evidence of economic resilience and constrained supply indicates that asset prices should adjust higher over time.
European Real Estate
In 2023, European real estate saw notable rental growth due to favorable supply-demand dynamics, even in previously challenged sectors like offices. With vacancy rates low and new developments on the decline, rental growth is likely to continue in 2024-25, further supported by an absence of new supply.
Opportunities Ahead
Real estate’s recovery seems highly feasible, particularly in prime locations and supply-constrained sectors. For investors, now is an advantageous time to consider real estate, given its resilience and growth prospects.
Optimistic Outlook
While equities and bonds come with their set of risks, real estate appears to have priced in much of the bad news. The current market lows present a compelling entry point, historically rewarding for value-focused investors. Combining rental growth potentials with long-term trends like green buildings could make real estate an even more attractive investment going forward.
About the Author
The writer is deputy CEO and global head of real estate at Pictet Alternative Advisors.
This story was first published on jpost.com.