Non-listed real estate recovery could be near, says Inrev

European non-listed real estate may be “close to the start of a recovery,” according to Inrev, after recording an improvement in market sentiment in June. The association’s consensus indicator for June, designed to capture market sentiment and turning points, showed a second consecutive improvement after reaching a headline reading of 53.6. The figure is up from 50.2 in March this year. Four of five sub-indicators in the index have exceeded 50, with the economic sub-indicator increasing to 56.1. New development was the only exception, at 48.9. The investment liquidity sub-indicator rose significantly to 54.1 in June, from 46.2 in March 2024. Researchers said this signalled a “notable” shift in sentiment and that transaction activity “ought to pick up” in the coming quarters. Some 80% of respondents expected income return to be the key driver of near-term performance, the highest share since the start of the series in March 2022. Leasing and operations was the only category that declined in the period between March and June, falling from 60.2 in March to 58.9 in June. Inrev attributed the decline to a “slight retraction” in the growth of effective rents and occupancy rates. Despite the decline, leasing and operations remained the strongest sub-indicator. Close to 15% of aggregate portfolios experienced a decline in rents, against 56% with an overall improvement. Researchers said the figures highlighted the growing bifurcation in the occupier markets. Modest returns in the UK Elsewhere, the Q1 2024 Inrev fund index reported a 0% total return across European markets, improving from -1.9% in Q4 last year. The UK and the Netherlands reported modest positive performances with returns of 0.49% and 1.08%, respectively. Germany and France remained in negative territory, at -0.09% and -0.43%. In the UK, retail delivered the best performance at 0.83%, while residential returns hit 0.77%. Offices remained the only main sector to continue recording a negative performance in Q1. However, European offices posted a “significant” improvement, producing  a total return of -0.88% after a record low of -4.53% in Q4 last year. Researchers said the uplift was mostly driven by seasonal and valuation effects. Performance turned positive at an asset level for the first time since Q2 2022, with the Q1 2024 Inrev asset level index showing a total return of 0.4%. “Nuanced” recovery on the cards European transaction volumes shrank from €46bn in Q4 2023 to €33bn in Q1 2024, remaining below the long-term quarterly average of €57.2bn. Inrev noted that while discussions around deal-making are taking place, transactional activity has yet to pick up. Iryna Pylypchuk, director of research and market information at Inrev, said: “European real estate has seen significant levels of repricing, and we see the first notable shifts in sentiment pointing to the fact that the market is close to bottoming out. However, it’s important to recognise that we are not out of the woods yet and that the recovery will be very nuanced. “The latest ECB cut should not be considered a precursor to further cuts in September and/or December. The next cycle will see a return to fundamentals as the era of low yields driven by artificially low interest rates is over. Outperformance will be focused on stock selection and the timing of the market entry. The speed and nature of recovery will vary notably across different markets and sectors. It will certainly not be a linear journey.” Photo by energepic.com/Pexels