Sentiment in the real estate market at this time last year was split into two camps: the optimists who were calling for investors to “do more in ’24” and the pessimists who were talking about “staying alive until ’25.” We were very much in the optimists’ camp.
Looking back, as we expected, values stabilised across Europe during 2024 as interest rate cuts helped put a floor under values. The UK market led the way into the down cycle in 2022 and led the way out in 2024. UK property-level total returns turned positive in January, gradually improving over the year, and by November, all sectors were recording month-on-month positive capital value growth. Full-year returns are likely to be 6.0%+, and 3-month annualised returns are running at approximately 10%.
On the broader European front, pan-European portfolios posted positive returns in Q2 (taking income into account) and positive capital value growth in Q3. The residential and industrial sectors have led the recovery, reflecting investor appetite and, therefore, market liquidity. However, retail warehousing has delivered good performance over the year, and while office markets have lagged, yields have stabilised and rental growth will help to drive positive returns.
Capital values fell less than 1% during H1 2024, so those placing money in the market during 2024 seem to have called the bottom of the market correctly, and 2024 should prove to be a good vintage for them. But what does 2025 hold in store for investors?
