Total investment across the European real estate market fell by around 14% in 2022 compared to the previous year, coming in at EUR 248 billion, according to global law firm CMS' European Real Estate Deal Point Study 2023.
During the first six months of 2022, the markets rebounded from the Covid-19 pandemic. This resulted in a flourish of transactions and total investment – matching the record levels seen in 2020. In the second half of 2022, however, the sharp increase in financing costs prompted cautious investment behaviour. This lead to a decline in overall investment levels across all of Europe. The decline was particularly pronounced in the fourth quarter of 2022, with investments plummeting by 57% compared to the same period in 2021, reaching approximately EUR 47 billion.
The report noted that investment trends varied widely across countries, with Italy (+25%), Spain (+29%) and Belgium (+177%) experiencing greater investment volumes in 2022. France (+1%) maintained investment levels similar to the previous year, whilst Germany (-16%) and the UK (-19%) witnessed a decline.
Jan Peter IJspeert, partner Real Estate & Construction at CMS in the Netherlands: "CMS has facilitated a large number of transactions despite changing market conditions in the second half of 2022. Looking ahead, market conditions continue to be challenging for real estate investors."
Volker Zerr, partner Real Estate & Public at CMS in Germany, said: “Investors should remain vigilant and adaptable in the face of ever-changing economic conditions. The ongoing uncertainty in the market has nevertheless created a favourable environment for buyers, enabling them to negotiate high discounts when purchasing properties. The decrease in real estate investment has continued this year. In the first half of 2023, a clear reluctance on the part of investors could be observed. One of the main reasons for this is the constantly increasing interest rate environment. So far, there are no indications of a trend reversal, so further development remains to be seen.”
Key trends
CMS’ analysis revealed the following key trends:
- Demand for office property is on the rise again
Following the record low of 2021 (19%), investor interest in this segment revived. Its percentage share rose to 24%, making office real estate the most sought-after asset class in Europe alongside residential property.
- Investment in residential properties accounted for a 24% share of the market
That made them the most sought-after asset class with regard to the transactions on which CMS advised. The main reason for the popularity of residential properties is the stable income that they generate, which is particularly attractive to investors during uncertain times.
- International investors accounted for the majority of real estate investments
At 54%, their share was almost the same as in the previous year (55%). National buyers, whose investments accounted for 46%, dominated the market as recently as 2020 due to the Covid-19 pandemic. This trend has now reversed slightly in favour of international investors, following the lifting of travel restrictions.
- Strong desire for security on the part of sellers sustained
Similarly to 2021, 70% of the transactions involved steps to ensure the buyer met its financial obligations.
- Buyers were frequently able to negotiate favourable terms on limitation periods
Parties agreed to the buyer-friendly statutory limitation rules more often. However, limitation periods of more than 24 months were also often agreed in 2022, whilst there was a slight fall in the proportion of short limitation periods of up to 18 months.
- Notable increase in seller-friendly limits on liability
De minimis and basket clauses were agreed significantly more often in 2022 than in 2021 (52% and 42%, respectively), thus setting the market standard even in more buyer-friendly times. This represented an 8% increase in de minimis clauses and a 10% increase in basket clauses in transactions carried out by CMS last year. Most interestingly, the number of transactions with agreements on limits to liability was particularly high in Eastern Europe, including de minimis clauses (70%), basket clauses (52%) and caps (75%).
View the full report here.
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