For many years, Emerging Trends Europe has highlighted the importance of sustainability. But this year’s research indicates a ratcheting up of the collective pressure from institutional investors, lenders and occupiers.
Indeed, from a legislative standpoint, the importance of ESG issues has grown, regardless of recession or political and social challenges, and the ESG-related target deadlines have continued to edge nearer despite the pandemic, war and macroeconomic headwinds.
Sustainability regulation and the risk of asset obsolescence are driving a wedge between market prices and valuations. The age and condition of Europe’s residential stock, notably, presents a huge challenge for decarbonisation efforts: 38% of residential buildings were built before 1970 and the majority have not been renovated to meet climate change targets. Without renovation, they are certain to devalue.
But while regulations require making real estate fit for purpose and ESG compliant, market participants are struggling to make the necessary investments in the face of high interest rates and construction costs alongside other competing demands on their finances.
One consequence has been record-low investment volumes. Though the survey indicates greater business confidence and profits for 2024 than a year ago, this is from a low base and is still well below the optimism of previous years. The industry is paying close attention to economic forecasts for Europe that suggest sluggish growth at best.
This year’s annual survey of European real estate sector leaders’ expectations, by the Urban Land Institute (ULI) and PwC, captures the views of sector leaders from across Europe, covering current influences and the trends shaping the industry over the next two decades.
“Europe’s real estate industry has reached a point where it knows it must balance making money with providing for the future needs of a complex and fast-changing society. It just needs to figure out how to get there. The more progressive real estate investors are increasingly basing investment decisions on social and megatrends such as demographic change, the need to decarbonise the economy and digitisation. As a result, they’re venturing into more alternative, or niche sectors, beyond the traditional ‘big three’ of offices, retail and logistics.”
Sector prospects
Most European investors still take a sector-based approach to real estate, although the industry is developing a more sophisticated understanding of what drives rental income and value in real estate occupation.
The two segments that historically constituted the lion’s share of the market – offices and retail – currently hold limited appeal for many investors. The relative risk-adjusted return outlook is also raising questions about real estate’s status as a favoured asset class. Consequently, the imperative to identify sectors that provide stable income that is proof against recession and disruption is stronger than ever before.
As a result, the top spots of the rankings are once again dominated by niche, operational sectors that are acknowledged as being underpinned by global megatrends — decarbonisation, information technology, demographics and urbanisation. Below them lie the most popular representatives of the well established storage, logistics and residential sectors, which offer similar attractions.
Notable changes include healthcare (from 16th to 3rd place) and student housing (from 12th to 4th), reflecting a growing interest in sectors once considered niche, and a mismatch between supply and high demand.
The impact of hybrid working on the office sector remains the burning issue for many real estate professionals, but little hard evidence has yet emerged as to how the trend will ultimately play out. However, there is broad agreement on what the industry needs to do: prioritise quality space that helps companies adapt to the latest working practices. Tenants’ wish-lists include sustainability credentials, proximity to public transport, flexible space, outside spaces, and amenities adapted to cycling.
Sector prospects in 2023 - Top 10
| Rank | Sector |
| 1 | New energy infrastructure |
| 2 | Data centres |
| 3 | Healthcare |
| 4 | Student housing |
| 5 | Retirement/assisted living |
| 6 | Self-storage facilities |
| 7 | Logistics facilities |
| 8 | Co-living |
| 9 | Serviced apartments |
| 10 | Private rented residential |
City prospects
London and Paris retain their first and second rankings. Though staff have largely returned to the workplace, there is agreement that demand is growing for the more enticing spaces. In third place, Madrid is considered one of the most attractive places to invest in Europe because it's growing from a stable population and is attracting immigrants, high quality students and huge amounts of tourism.
Amsterdam continues to rise in the rankings, partly reflecting the strong focus in the Netherlands on sustainability, both in general construction and in renewable energy generation in the wider economy, which augurs well for compliance with EU regulations at building and fund level. Clouds on the horizon for investors include the onset of housing rent regulation in 2024 and political uncertainty.
Milan rose from 10th to 6th place, noted for its liveability, attractiveness to talent and relative economic strength compared to the rest of Italy. Berlin, like the other German cities in the survey, has slipped down in the ranking. This partly reflects the gloomy growth forecast for the national economy in 2023 and the relatively weak rebound expected in 2024. There are also city-specific political and micro-economic factors in play, notably the time from buying land to getting a building permit.
Brussels is also in the ascendancy, up three places to 12, with investors coming to terms with its strict rules on new development, although they fear that the time taken to obtain permits may deter leading occupiers, such as the European Commission, from maintaining their footprint.
Overall prospects - Rank 2024 vs 2023
| City | ETRE Ranking (2024) |
ETRE Ranking (2023) |
Change |
| London | 1 | 1 | = |
| Paris | 2 | 2 | = |
| Madrid | 3 | 4 | ▲ |
| Berlin | 4 | 3 | ▼ |
| Amsterdam | 5 | 6 | ▲ |
| Milan | 6 | 10 | ▲ |
| Munich | 7 | 5 | ▼ |
| Lisbon | 8 | 11 | ▲ |
| Frankfurt | 9 | 7 | ▼ |
| Barcelona | 10 | 9 | ▼ |
| City | ETRE Ranking (2024) |
ETRE Ranking (2023) |
Change |
| Hamburg | 11 | 8 | ▼ |
| Brussels | 12 | 15 | ▲ |
| Dublin | 13 | 13 | = |
| Warsaw | 14 | 16 | ▲ |
| Vienna | 15 | 12 | ▼ |
| Zurich | 16 | 17 | ▲ |
| Manchester | 17 | 18 | ▲ |
| Copenhagen | 18 | 14 | ▼ |
| Rome | 19 | 21 | ▲ |
| Luxembourg | 20 | 20 | = |
“ESG is no longer a nice-to-have, but a determining factor in investment decisions. In parallel with ESG compliance requirements affecting established real estate sectors, ESG also opens a new world of potential investible products for private equity and opportunistic money — a new generation of niche sectors. These offer opportunities for massive amounts of real estate investment in the coming years, from battery storage for renewable energy, to solar farms, electric vehicle parking and charging stations, and other new energy infrastructure.”
About Emerging Trends in Real Estate® Europe
Emerging Trends in Real Estate® Europe, a trends and forecast publication now in its 22nd edition, is a highly regarded and widely read report in the real estate industry. Undertaken jointly by PwC and the Urban Land Institute, the report provides an outlook on investment and development trends, capital markets, cities, sectors and other real estate issues throughout Europe. Emerging Trends Europe 2024 reflects the views of sector leaders from across Europe.
About the Urban Land Institute (ULI)
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has over 46,000 members worldwide representing all aspects of land use and development disciplines.
ULI’s mission priorities that the organisation will be focusing on over the next three years include decarbonising the real estate sector and targeting net zero; educating the next generation of diverse real estate leaders; and, increasing housing attainability in communities around the world.
ULI has almost 5,000 members in Europe across 13 National Council country networks. For more information, please visit uli.org, or follow ULI on Twitter, LinkedIn or Instagram.
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