Real estate in the UK and Europe will rise as buyers look for investment opportunities

The UK looks set to lead a European property resurgence this year as international investors pour capital into the region's strained property market.

An expected drop in interest rates and a modest economic recovery will spur inflows from foreign investors seeking to capitalize on “increasingly attractive price levels”, according to new research from an international real estate firm. Savills suggests.

American, Israeli, Japanese and Taiwanese investors will lead that charge, spearheading a 20% rebound in real estate investment activity in 2024 as they pump cash into Britain, Germany, Spain and the Netherlands, according to the research.

“It certainly looks like we're over the worst and are experiencing a bit of progress in the recovery,” Rasheed Hassan, head of global cross-border investments at Savills, told CNBC.

“The UK is one of the biggest discount markets,” he added, noting that it moved “hard and fast” but that its fundamentals – namely a deep market, easy access and limited domestic competition – remain intact.

Great Britain ranked as the main European destination for cross-border investment in CBRE European survey on investor intentions for 2024, in which investors highlight its low rates and high return potential. Germany, Poland, Spain and the Netherlands followed. London was considered the most attractive city, followed by Paris, Madrid, Amsterdam and Berlin, according to the survey.

“London is one of those few cities that consistently demonstrates its resilience in the face of difficult economic headwinds and remains an important focal point for global capital,” said Chris Brett, managing director of CBRE's European capital markets division.

The UK is now expected to attract a third (or around $13 billion) of overseas investment in 2024 from the US alone, according to Knight Frank estimates. Germany, Spain and the Netherlands will be the next biggest beneficiaries of American cash.

2023 follows a difficult year for the real estate sector, as higher interest rates raised borrowing costs and affected investor confidence.

Global cross-border real estate investment amounted to €196.3 billion ($212.9 billion) during the year, down 40% from the five-year average, according to data from Real Capital Analytics cited by Savills. The drop was most pronounced in Europe, the Middle East and Africa (EMEA), where capital inflows were 59% lower. This compares to the 56% drop seen in the Americas and the 12% drop seen in Asia Pacific.

A total of €65.2 billion ($70.6 billion) was invested in continental Europe in 2023, the majority of which came from intra-European cross-border buyers, mainly in France and Spain. Less than half (40%) came from outside the continent, the lowest proportion since 2010.

However, that trend is expected to change as international institutions and individual investors return to the market as the European Central Bank and the Bank of England show signs of cutting rates.

“We anticipate that Europe is likely to regain its leading position as the leading cross-border investment destination over the next 12 to 18 months,” Savills said in its note.

This year, for the first time, logistics and residential properties overtook offices as the preferred asset class for foreign buyers, according to the CBRE survey. More than a third (34%) of investors expressed a preference for logistics and 28% for residential, compared to 17% who preferred offices.

It comes after office transactions fell 71% from the five-year average in 2023, according to RCA data, amid concerns of a broader commercial property slowdown.

Still, Savills' Hassan said options remain for “opportunistic investors” looking to take advantage of deep discounts on office and retail space.

“Surprisingly, we are hearing statements [from investors] around us we would like to invest in offices right now. Looking ahead, I think there will be less negativity around offices,” he said.