European Macro Outlook: What's in a Number?




Reset, New Reality 2022 had a positive start, the European economy was growing, and investment volumes were at high levels: first quarter volumes were 33% above the five-year average (2017-2021) and 39% above 2021 levels in Europe. As Russia’s invasion of Ukraine began taking its toll, pressure on energy and commodity prices mounted, aggravating the already post-lockdown inflationary environment. Central banks began reacting by tightening monetary policy, which resulted in higher interest rates and higher debt costs.

Rest of Europe 5%

CEE 4%

Semi-Core 13%

UK 26%

Nordics 14%

Germany 16%



France 13%

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research

As we enter 2023, commercial real estate is still undergoing a period of price discovery. Lower liquidity is a natural result of these periods of market uncertainty. Sellers are reluctant to sell at discount and tend to hold on to their assets until they have a clearer view of the outlook, uncertainty subsides or a forced sale is required, which happens in limited cases. Buyers want to reflect the ongoing repricing as financing costs increase. This results in a mismatch between buyers and sellers, which tends to reduce the deal count. In Q4 2022, the number of active buyers and sellers fell to the lowest level since 2013. Market fundamentals are still performing relatively well, therefore the correction in capital values—which are down 9% since June 2022—is a consequence of yields moving out significantly from record-low levels. All sectors will witness a correction in yields over the first half of this year. Polarisation in prime and secondary property assets will continue with average yields expected to rise further than prime. In the short term, we expect investment volumes to remain moderate, picking up later in the year once interest rates stabilise.

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research

As economic uncertainty and confidence about the outlook worsened throughout 2022, transaction volumes followed suit, posting significant declines in the second half of the year. The fourth quarter was particularly slow, recording the lowest volume of the year overall. Typically, the fourth quarter is the most active, as there is tremendous seasonality in investment activity. Transaction volumes were down across all property sectors in 2022, registering a 25% decline overall. The most impacted sectors were logistics and residential, which had stronger performances throughout the pandemic and recorded unsustainable levels of activity in late 2021. Declines in investment volumes in Germany and Sweden were starkest, falling by 50% compared to the previous year. As it typically does, the UK accounted for the largest share of total European investment, at over €70 billion, though volumes still fell by 15% and 61% for the year and fourth quarter, respectively. The Central London office market recorded its second slowest quarter on record, with deal volume even lower than during the depths of the 2008 global financial recession.


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