11 December 2024, Amsterdam – With a headline reading of 57.8, the latest INREV Consensus Indicator reveals continued signs of recovery for the European non-listed real estate, up from 55.8 in September 2024. This marks the fourth consecutive quarterly improvement, and the highest reading since INREV started tracking the market consensus in March 2023.
For the first time, three of the five subindicators surpassed 60. The investment liquidity subindicator rose from 59.5 to 63.3, maintaining its lead for the second consecutive quarter. This suggests the build-up of a deal pipeline and a growing desire to transact. At 61.5, the financing subindicator showed the most significant improvement, up from 56.6 three months prior. More than a quarter of respondents suggested that not only alternative lenders, but increasingly traditional lenders have started to be more active in providing new financing opportunities. Furthermore, there is some evidence that financing conditions are becoming more favourable.
The leasing and operations subindicator also rebounded to 61.5 – its first reading above 60 since March 2024. Notably, 58% of contributors to the Consensus Indicator reported net effective rent improvements for new leases and rent renewals.
However, the new development subindicator and the economic subindicator both fell below 50 to 49.5 and 47.4, respectively. The sharp decline in the economic subindicator – down from 58.6 last quarter – marks its first sub-50 score since December 2023. This is driven by expectations of a contraction in European GDP over the next 12 months.
Third consecutive quarter of positive performance
According to the INREV Quarterly Fund Index for Q3 2024, total return reached 0.59%. However, at -0.16%, capital growth turned negative after only one quarter of positive results (0.09% in Q2).
The INREV European Quarterly Asset Level Index for Q3 2024, posted positive returns for all four of the largest markets – the Netherlands, UK, France and Germany – of 2.98%, 1.54%, 1.10%, and 0.56%, respectively. Spain appears to have regained momentum, delivering a strong total return of 1.48% on the back of solid economic growth, increased occupier demand and renewed investor confidence.
The INREV Consensus Indicator Survey reports that 74% of participants also expect rental income to be a primary driver of return in Q1 2025. Moreover, 37% expect yield compression during the next quarter. This is the highest result since the monitoring began in March 2023 and an increase on the 31% reported in September 2024.
Residential and industrial/logistics sectors drive returns
Residential and industrial/logistics achieved their strongest performance in nine quarters and accounted for the lion’s share of return improvements across most European markets.
The INREV European Quarterly Asset Level Index for Q3 2024 also reveals that residential returns in the Netherlands, the UK, France and Germany hit 3.81%, 1.24%, 1.10% and 0.98%, respectively. This is no doubt a reflection of the robust fundamentals underpinning the sector
Residential has grown significantly in importance over the last decade. Indeed, in terms of value over this ten-year period, it has moved from being the smallest to the largest major sector across single sector funds. It is also a growing proportion of multi-sector funds. It is also a growing proportion of multi-sector funds. Together, residential allocations represent 25% of the INREV Quarterly Fund Index, becoming the largest major single sector, while offices and retail have both contracted. The latest INREV Consensus Indicator cites residential among the top preferred sectors, with net positive sentiment of 24%.
Iryna Pylypchuk, INREV’s Director of Research and Market Information, said: ‘The latest data provide helpful evidence of continued improvement in the European real estate market. Outlook for investment liquidity and lending improved, December marks the first point in time since we started monitoring market consensus when the availability of financing has improved across the full spectrum of risk strategies, including development. While the broad picture looks encouraging, there are clearly still some challenges ahead. The uncertain political and geopolitical environment and weak economic outlook for most western European countries mean lingering downside risks. As we move into 2025, concerns around the bifurcation of the letting market and occupiers’ financial health remain unabated.’