Building on our previous article about trends for the real estate industry in 2024, let’s now turn our focus on what we can anticipate when looking deeper at specific real estate asset types.
While some asset types, such as office spaces, have struggled in recent months, others, like hospitality and logistics, continue to attract significant interest from investors.
While ESG is expected to be at the heart of investors’ considerations, what are the trends to expect in the near future?
- Within the hospitality sector, the holiday season is approaching, and we are kicking it off with our popular KPMG Plage. Although investment levels remain far behind pre-Covid, there has been an increase in demand in the sector, especially in Western and Southern Europe. Other regions, however, are still facing challenges by geopolitical uncertainty. Despite limited supply, the strong rebound of domestic travel is expected to positively impact the industry soon, primarily due to high construction costs.
- Retail assets have experienced changes driven by the online shopping boom. However, there is now a positive outlook regarding real wages increasing and declining inflation, opening the door for the growth of flagship stores as well as the continued increase of prime rents.
- Office occupancy in Europe is still struggling, with the office building market one of the most impacted markets affected by recent economic instability and uncertain economic growth.. This trend is not expected to change much in most European markets, although certain cities may be more impacted than others. As ESG expectations become more prominent, the gap between prime and ESG compliant assets versus the others is expected to widen. Due to this, however, we see some asset managers explore alternative uses for their real estate assets, such as converting well-located office properties into residential properties.
- After experiencing some slight decline in values in 2023, logistics assets remain a healthy property type, with a positive outlook linked to more stability in capital markets and potential rental growth thanks to continuous development and growth of e-commerce.
- As previously mentioned, weak economic growth expectations continue to cast doubt on residential real estate, compounded by uncertainty around exit values and difficulties to fund new projects. However, demand for new housing remains strong considering the lack of supplies in recent years. Rents are likely to continue to increase in such circumstances while ESG considerations will introduce new challenges in meeting sustainability targets in the European markets.
- Other asset types, such as data centers, will maintain steady appetite from investors as capacity demands expand. Similarly, after a couple of years of record-breaking growth, student housing and care homes have proven to be a resilient asset type, capturing robust interest from institutional investors, with continuous rental growth prospects in the high post-COVID occupancy context.
- For alternative real estate investment strategies, refer to our recent article on real estate debt funds, which are expected to experience a continuous strong interest from investors looking to invest into real estate.
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This article was co-written by Bobbi Jean Breboneria, Partner, KPMG Luxembourg and Pierre Kreemer, Partner, Head of Real Estate, KPMG Luxembourg.
