European commercial and residential real estate downturn

The European real estate market has entered a period of significant stagnation, with commercial transaction volumes reaching their lowest levels since the 2009 global financial crisis. This downturn is primarily driven by rising borrowing costs and interest rate hikes by central banks, which have created a disconnect between buyer expectations and seller valuations.

In the office sector, transaction values dropped by one third compared to the previous year, reaching 8.8 billion euros in the third quarter. While demand for prime city-center locations in cities like Paris, Amsterdam, and Madrid remains relatively strong, a continent-wide vacancy rate above 14% persists due to outdated buildings. Investors are increasingly risk-averse due to inflationary costs and concerns regarding contractor insolvencies.

In the United Kingdom, the residential market is also facing pressure. Average prices for inner London flats fell by approximately 8.1% over the year to August, the largest annual decline since 2009. This slump is attributed to higher mortgage interest rates, changes to tax relief and eviction laws, and the departure of small landlords.