Real Estate Outlook – Europe, Edition March 2023

European property values have only moved down marginally and have a long way to go to reach a level that reflects the higher interest rate environment. The UK is an exception, which after a –13% correction in 4Q22 appears attractively priced versus other global markets.

Zachary Gauge, Head of Real Estate Research & Strategy – Europe ex DACH

Much of the economic commentary in 2022 focused on how higher inflation and interest rates would impact the European economy in 2023. But as we kick off the year, there is a cautious optimism that the actual impact on the economy may not be as bad as previously feared. The eurozone is now expected to avoid a recession in 2023 (UBS Investment Bank forecast +0.8% GDP growth). The risk of gas shortages has eased with the unseasonably warm winter and the economy has been boosted by the easing of supply chain stress, and the reopening of China lifting industrial production and export prospects. The UK is still forecast to have a recession in 2023 (UBS Investment Bank forecast -0.5% GDP growth), although this is lighter than anticipated towards the end of 2022. And importantly, unemployment is only forecast to rise marginally (0.3 percentage points in both markets to end-2024. CPI is forecast to come down sharply over the course of 2023, averaging 6.5% in the UK and 4.8% in the eurozone, largely driven by base-effects and the fall in wholesale energy prices.