Europe Commercial Real Estate Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

Europe Commercial Real Estate Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

The European commercial real estate market is expected to register a CAGR of more than 5.5% during the forecast period.

The COVID-19 pandemic had a huge impact on the European commercial real estate sector. Although the crisis impacted the European economy and further affected investment sentiment among investors and occupiers, now the sector is in a recovery phase but has not reached the pre-pandemic levels.

According to the European Public Real Estate Association, the European Union’s commercial real estate sector contributed a combined GDP of more than USD 15.3 trillion in 2021. In addition, the sector had 177 REITs, with a combined market cap of USD 133 billion, and 261 Non-REITs, with a combined market cap of USD 308 billion.

Furthermore, Germany is still leading the commercial real estate sector despite the declined growth rate in the market. The declined growth rate in Q4 2021 was 8% compared to the same quarter in 2020 but experienced a growth of 14% compared to pre-pandemic levels. In addition, United Kingdom is the next leading country in the market, with an annual growth rate of more than 25% in Q4 2021 compared to the same quarter in 2020. Moreover, countries like Sweden, United Kingdom, Belgium, and Norway saw the highest growth in the sector. Meanwhile, France, Spain, and the Netherlands experienced a slow phase of recovery due to their declined retail sectors.

Key Market TrendsIncreasing Investments in the Commercial Real Estate Sector

The COVID-19 pandemic severely impacted the sector, and now, the market is in a recovery phase, as increasing investments are flowing into the sector. The commercial real estate sector had a strong rebound in investments in Q2 2021, with a growth rate of more than 70% compared to the same quarter in 2020. Furthermore, the investment flow continued in Q3 and Q4, with growth rates of 25% and 22%, respectively.

In addition, overall investments in 2021 accounted for more than EUR 270 billion, with an increased growth rate of 14% compared to 2020. This represents a strong recovery of the sector after the crisis, and this investment trend is widely shared among European countries.

Germany and United Kingdom experienced the highest investments in the commercial real estate sector. Due to the vaccination roll-outs and pandemic relaxations, most developers are resuming their work. This factor boosted investments in United Kingdom, as the country witnessed a growth rate of 20% compared to 2020, followed by Germany with a 7% growth rate in investments. The French and Dutch markets experienced decline rates in terms of investments.

However, foreign investments in the market were impacted by the pandemic earlier, but they have recovered now. In 2021, Americans showed strong interest in the sector among foreign investors and brought their investments back to pre-crisis levels, with more than EUR 41 billion investments in the sector.

The Logistics Market is Witnessing Lucrative Growth

Despite the pandemic disruption, the European logistics real estate market is resilient. E-commerce remains the main driver of the logistics market in Europe. Furthermore, strong changes in consumer behavior triggered by the pandemic crisis created the demand for online shopping and helped in the penetration of e-commerce in the market.

In addition, the sector experienced growth in investments, with more than EUR 25 billion invested during H1 2021. The market set a record and a strong growth rate of 62% compared to 2020. Meanwhile, the demand in the logistics real estate sector is surpassing the supply provided in the country. The supply in the market is extremely tight due to a severe shortage of development sites and strict regulations. This further resulted in the rental growth of warehouses. In H1 2021, the rental growth accounted for more than 3.2% compared to H1 2020.

Moreover, United Kingdom and Germany are emerging as hotspots for logistics warehouses' space absorption. In H1 2021, Germany experienced record absorption of warehouse spaces, with more than 3.1 million square meters, followed by United States with 2.6 million square meters, with a growth rate of 16% compared to 2020.

Competitive Landscape

The European commercial real estate market is highly competitive and fragmented, with many players. Most of the players are expanding their businesses by investing strategically in partnerships, acquisitions, etc. The office sector, industry sector, and logistics sector are the most invested segments in the market. Furthermore, the investments in the market are driven by robust office space take-up and a rise in demand for logistic warehouses despite the disruption caused by the pandemic. Some of the major players in the market include Servo, Covivo, Hines, Blackstone Inc., STRABAG Group, etc.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support

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