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European investment market proceeds with caution

Attractive returns trigger rush for prime properties. Cautious optimism for the second half of the year. Hotel investments is in high demand.

Vienna, 21st of  August 2023 – With a volume of approximately € 24.8 billion, the European investment market has continued to under perform in the second quarter of 2023 (-55 % YoY). Reasons for this decline include factors such as further interest rate hikes and weak economic output. “However, although transaction volumes in the 2nd quarter are still low, we are observing that equity strong private investors in particular, have become active due to the most attractive yields seen in years and with that, the rush for carefully selected prime properties has already begun,” reports Markus Arnold, Owner and CEO of Arnold Investments.

The cautious optimism is based on the fact that since the summer of 2023, investors have been encountering the most diverse array of offers, coupled with the most attractive acquisition terms in years. Initial transaction benchmarks generated in the summer of 2023 are fostering greater price transparency in numerous European markets and reaffirming significantly more appealing levels of returns.

Upon closer examination, it becomes evident that prime yields for European office space have risen by 110 basis points compared to the previous year and by 20 basis points compared to the previous quarter, reaching 4.5 %. Yields in the logistics asset class have also increased to 4.9 % (+105 basis points YoY), while high-street retail currently stands at 4.45% and newly built residential at 3.95 %. “The significant increase in investor interest seen since June of 2023 has been fueled by the most attractive yield levels recorded since 2015,” explains Martin Ofner, reinforcing Arnold Investments’ prognosis.

All in all, yields have increased in every asset class and across all 10 markets where Arnold Investments is active (Austria, Germany, Spain, Italy, Portugal, Czech Republic, Slovakia, Hungary, Netherlands, and Sweden).

Hotel investments in Europe are in high demand

As in previous quarters, the hotel asset class continues to perform exceptionally well and has recorded its strongest first half of the year since 2019, despite challenging conditions. “Investors are viewing the European hotel real estate market very positively due to the favourable tourism indicators,” explains Ofner. This is reflected in the lowest EU-12 prime yield increase among all asset classes, rising from 5.40 % to 5.45 % in Q2, 2023.

Increase expected for the second half of the year

Arnold Investments anticipates that yields will reach their peak by the end of the year, closely tied to the further development of the ECB benchmark interest rate. Therefore, for the second half of 2023, an increase in investment volumes compared to the current level is expected, albeit within manageable limits. “We foresee increased activity in the investment markets until the year’s end, which, due to the considerably longer sales processes currently prevailing, won’t be fully reflected in the transaction volumes until 2024,” adds Markus Arnold.

For further information on the real estate markets of the European Union, please visit: www.arnold.investments/market

Background Information:

Arnold Investments – operating as Arnold Immobilien in Austria – is a multinational brokerage firm specializing in brokering real estate investments in ten European markets. The Vienna-seated company was founded by Markus Arnold in 2009 and is now one of the leading real estate investment brokerage firms in Europe. The company has a diverse portfolio of apartment buildings, retail parks, shopping centers, office buildings, hotels and land in Europe. For further information, please visit: www.arnold.investments

Foto credit: Arnold Investments

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