The lay of the macroeconomic landscape across Europe and investment opportunities for 2024
As we remain in a period of price discovery with large variances in the behaviour and speed of price correction, twinned with variation in inflation and GDP forecasts, we explore the current situation and how the market may unfold over 2024.
2 minutes to read
Victoria Ormond, Head of Capital Markets Research, and Judith Fischer, Associate European Commercial Research, provide their insights. Watch the 5-minute clip or read our 5 key takeaways below.
This clip aired on 5 December 2023 as part of our Knight Frank European Breakfast. You can watch the full-length event here: European Breakfast 23/24 - Positioning for the Future
Key takeaways
1. Divergence in inflation across Europe remains. However, overall, economists anticipate the Eurozone average inflation to settle around the 2% mark in 2024 and Germany to undershoot. Along with a shift to a more dovish tone by the US Federal Reserve, which tends to set the pace and tone of global interest rate activity, the conversation has increasingly shifted to when will the ECB start to unwind rates and to what stabilised level. Forecasts vary with some predicting the first ECB rate cut in Q2 2024, while others foresee a later cut in Q3 2024. Interestingly, money markets are factoring in a high chance of a rate cut in the first quarter of 2024.
2. Despite headwinds, Europe still stands as the largest destination for global cross-border capital in 2023 with some significant pockets of resilience. Over in Spain, the hotel sector inbound investments have already surpassed the full year totals of the last four years, supported by double-digit economic growth in tourism sectors. The residential sector too has seen investment volumes nearly 18% higher than the long-term average. And while the European office sector might be overshadowed, the average European office vacancy rate was below 10% at the end of Q3 2023, significantly less than that seen in many US cities.
3. Pricing opportunities across Europe from shifting yields are increasing. Prime office yields in cities like Munich, Dublin, Berlin, and Frankfurt have expanded by over 100bps from their recent lows. In places like Amsterdam and London City, the shift is even more pronounced at 150bps, with London being a forerunner in yields adjusting.
4. Looking ahead, trends influenced by major infrastructure investments are emerging, spanning from digital technology, transportation, energy, and the transition to net zero. Physical infrastructure, for instance, is evolving new opportunities for logistics. A case in point is the Fehmarn Belt Tunnel, which will enhance connectivity between the Nordic regions and Central Europe, reinforcing the efficiency of the ‘Green Banana’ logistics corridor.
5. The rise of technologies, such as AI, necessitates robust data infrastructure. Our Knight Frank research suggests a steady growth in European data centre supply, with an estimated annual increase of almost 11% leading up to 2030, presenting a wealth of opportunities for investors.
If you would like to read more from our Active Capital programme, visit: www.knightfrank.com/active-capital.