UK real estate investment volumes fell 45% to €8.9bn in Q3 2023 compared with the third quarter last year, according to MSCI Real Assets’ Q3 Europe Capital Trends report.
It was the second worst quarter on record in terms of the number of properties sold, with deal activity falling 49% to €32.5bn for the first nine months of 2023.
London ranked second after Paris as Europe’s top investment destination by the end of September, but the number of buildings transacted fell to an all-time low, with the British capital recording €10.4bn of property sales in January through September – down 57% on a year earlier.
The volume of completed transactions across Europe fell 57% in Q3 compared with a year earlier to €32.8bn – the weakest activity since 2010. Overall investment in the first nine months of the year stood at €119.0bn – less than half the level for the same period in 2022. At the start of October, pending transactions were at their lowest level since 2011.
Tom Leahy, head of EMEA real assets research at MSCI, said: “The exceptionally rapid increase in interest rates meant that property went from keenly priced at the end of 2021 to overpriced by the end of 2022. Low liquidity and volatility in bond markets have complicated the price discovery process for property, causing a wide disconnect in expectations of buyers and sellers, with negative consequences for transaction activity.”
MSCI said there had not been widespread distress sales to date, but it pointed out that historically there is usually a lag of several years between the peak of a crisis and a pick-up in the number of distress sales.
Leahy added: “Distress is often what breaks the liquidity logjam by bringing price discovery, but at the moment we are still some way off from that being widespread. Germany is very much in focus as the number of properties in a distress situation has climbed to the highest in years. How this pans out will be determined by the behaviour of lenders in the months ahead.”
