Europe’s Real Estate Market Outlook Improves, Despite The War

Europe’s real estate outlook is improving, according to research by accountancy firm PwC. It remains “cautiously optimistic” about the continent’s prospects, particularly its leading cities. Despite the war, most business leaders believe confidence and profits will remain high into 2025, underscoring the reliance of countries like Germany, France, and the UK in the face of reduced energy supplies from Russia. Many bosses remain willing to do business and partake in large transactions, despite the apparent geopolitical risks. 

“Capital inflows into Europe could evaporate abruptly if there is an escalation in the conflict in Ukraine,” says Certain Surveyors. “But for now, the general sense in the business community is that the situation is being contained. Investors are still keen to put their hard-earned money into long-term projects with payoffs playing out over the next fifteen to fifty years, which is quite astonishing when you think about it.”

Regulatory and investment hurdles also abound in Europe. Property magnates must comply with thousands of statutes on the books, and understand how they apply at the country and EU level. But that, according to PwC, isn’t curtailing the investment figures they’re seeing. Despite issues relating to decarbonisation and reducing environmental footprints, companies are still interested in tapping into Europe’s highly-educated workforce. 

Areas For Concern

With that said, there are areas of concern for Europe’s resilient real estate industry. The first is access to power. PwC sees the rapid transition to net zero as an existential threat for businesses operating in the region, noting the correlation between access to affordable energy and the ability of economies to grow.

It also cites possible issues relating to the cost of insurance. Covering loss is likely to become more expensive as industrial civilisation declines, which is something now being planned at the highest levels. 

“The market is facing some headwinds in Europe as the political economy seems to be diverging from the United States,” says Certain Surveyors. “While the US is focusing more on building up its real estate market, countries in the EU aren’t pushing ahead with the same intensity. The focus across the continent seems to be more on the ability of the new development to meet sustainability goals, something that many companies are now focusing on as part of their governance and corporate social responsibility drives.”

Cities Leading The Charge

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Several cities across Europe are leading the charge now being witnessed in the continent’s real estate market. These locations promise to build on existing success and continue the economic miracle of the last seventy years. 

PwC used its unique methodology to rank European cities for capital investment and industry. However, this year, it attempted to widen its geographic scope to include locations further to the east to see how they stack up against conventional Western capitals. 

London managed to retain its top spot in the pecking order, thanks to its premium on liquidity. Real estate in the UK capital is buoyed by the presence of wealthy industries and the sheer appeal of the location for international investors wanting a base in the region. 

A close and surprising second was the Spanish city of Madrid. While Barcelona crumbles, attention in the Iberian Peninsular is turning towards its central metropolis. According to PwC, macro and micro-economic factors are driving the city’s success. It also offers a high quality of life and sits at the centre of Spain’s unique high-speed rail service that connects all the regions to the core. 

Despite its decades of decline, Paris is now in the third spot, down a place from the previous year. Why does the City of Lights continue to score so highly? Nobody knows. 

German cities of Berlin and Munich also feature, surprisingly ahead of Frankfurt, the country’s historical international capital. This rebound is being driven by confidence in the local market, following a terrible 2022 when energy issues seemed like they would cause the German economy to shut down. 

Interestingly, despite their inclusion in the analysis, PwC didn’t make the case for central or southern European cities. According to the consultancy, these are facing a mixed future and can’t be recommended for investments, presumably because of the demographic crises afflicting these regions. 

Trends In Europe’s Real Estate Market

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Several trends are underway in Europe’s real estate markets that investors should monitor going forward. One is the increasing burden of regulation on the continent. Three-quarters of investors say that it is excessive and gets in the way of conducting effective business. 

“The regulatory state in the EU and Britain is extensive,” explains Certain Surveyors. “The sheer volume of red tape is enormous, with many companies having to farm out administration to third parties to manage it effectively and compliantly.”

While some of these measures relate to safety, many of them do not. The primary issue appears to be regulations on the use of assets. Many large-scale investors require a combination of professionals to help them secure deals, while smaller ones must process the information themselves, which is time-consuming and requires patience. 

The overwhelming majority of people also believe AI will have an impact on the real estate market over the coming years. Investors believe that it will play a role in shifting the pattern of building use, perhaps making the European economy more distributed instead of concentrated in cities.

Part of the problem with the existing economic setup is that it is predicated on the notion that people will continue to work in city center buildings. This paradigm applied to the 20th century, but it doesn’t hold as strongly in the 2020s. Furthermore, many investors worry that artificial intelligence will replace knowledge jobs, undermining many of the most lucrative sectors. 

Ultimately, though, most real estate businesses and investors believe that their profits will stay the same or rise this year. As such, maintaining their networks on the European continent will be essential. 

“You have a lot of firms interested in this critical market,” says Certain Surveyors. “With the rise of China and the continued strength of the US, many in Europe believe the continent’s time has come.”