European commercial real estate transactions plunged 58% in the second quarter as rising rates upended the continent’s property markets.
(Bloomberg) — European commercial real estate transactions plunged 58% in the second quarter as rising rates upended the continent’s property markets.
In the three months through June, deals valued at just €34.4 billion ($38.3 billion) — the lowest level since 2010 — were recorded, according to MSCI Real Assets. Offices were hardest hit major segment, with transactions tumbling 68%, while hotels were the most stable with a drop of 36%, the firm said in a statement on Thursday.
“In these extremely challenging market conditions, the office sector stands out as hardest hit from the consequences of higher interest rates and as occupiers shift to hybrid working,” said Tom Leahy, MSCI head of EMEA real estate research.
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All major markets posted significant declines. The weakest country in the top 10 was Austria, which posted a 75% decline, compared with a 29% fall in Portugal, MSCI’s data show.
The rapid shift in the cost of borrowing has created a stand-off between buyers and sellers, freezing transaction markets. Commercial real estate valuations are typically appraised on the basis of transactional evidence, meaning values can be slow to update.
“There is a substantial disconnect in the pricing expectations of sellers and buyers,” Leahy said. “This will most likely continue until investors gain more visibility on borrowing costs and the health of the occupier market.”
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