European commercial real estate investment fell to its lowest in 11 years in the first quarter of 2023, MSCI Real Assets said on Thursday, as investors spooked by higher interest rates and the economic outlook put acquisition plans on ice.
The number of offices sold — Europe’s largest real estate sector — fell to its lowest on record, while the volume of transactions slumped to a 13-year low of 10.8 billion euros ($11.94 billion).
The United Kingdom kept its top spot as Europe’s largest commercial real estate market, but Paris overtook London to become the region’s most active investment destination, with the three largest European property deals of the first quarter all taking place in the French capital.
Commercial real estate has become a focus for fresh concerns about financial stability, after sharp interest hikes, recession fears and declines in office occupancy and retail footfall following the Covid-19 pandemic heaped pressure on values.
A recent JPMorgan investor survey cited commercial real estate as the most likely cause of the next financial crisis.
Some of the largest banks in the United States have singled out commercial real estate as an area of concern, while European banks have less direct exposure to the sector, according to International Monetary Fund estimates.
“While there are obvious concerns about the availability of real estate finance following the banking turmoil in March, we’ve yet to see a widespread increase in distressed sales,” said Tom Leahy, MSCI’s head of real assets research for Europe, the Middle East and Africa.
Giant asset manager Blackstone saw its first quarter earnings plunge as the commercial real estate slowdown stymied some asset sales. Blackstone has curbed withdrawals from its real estate income trust after a surge in redemption requests.