European commercial real estate deals hit an 11-year low in the first quarter of the year, according to MSCI data, as rising interest rates, banking turmoil and concerns about economic growth made investors more cautious.
There were deals worth 36.5 billion euros in the quarter, down 62 percent from a year ago, as a sharp rise in interest rates left buyers and sellers struggling to agree on the true price of properties.
Falling commercial property values and jitters in the banking sector after the collapse of Credit Suisse have fueled fears that overstretched mortgage investors or lenders may be the next source of major financial distress.
“While there are clear concerns about the availability of mortgage financing following the banking turmoil in March, we have not yet seen a widespread increase in distressed sales,” said Tom Leahy, Emea’s head of real estate asset research at MSCI.
He added: “It is worth remembering that after the global financial crisis it took several years before we saw a large volume of distressed sales.”
Leahy said the lack of forced sellers meant asset prices were slower to adjust, with owners waiting rather than selling at a discount. MSCI data showed that buyer and seller price expectations have diverged further in recent months.
Outward investment in European property has slowed sharply to its lowest level since 2011, although a number of Asian investors have taken advantage of the weak pound to pounce on it. London office deals.
The number of office deals is at the lowest level in records dating back to 2007. The increase in hybrid work during the Covid-19 pandemic has added to the headwinds facing office owners.
Paris bucked the trend with steady deal volumes, putting it ahead of London as the number one destination for investment, as transaction volumes in the British capital fell by 58 percent. However, MSCI said the French office market has been boosted by a small number of large deals including luxury group Kering’s purchase of two buildings in Paris for €1.5 billion in total.
Savills principal Matt Oakley said the London market was more dependent on foreign investors, who tended to be less active in periods of uncertainty. “I think you’re seeing a drop in cross-border investment activity that punishes London,” he said.