Regional overview

Europe

⏱ 4 min read

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Back on stronger footing and poised for green investment

Author: Martin Londra, Regional Real Estate Lead, Europe

Europe continues to feel the pressure from war within and near its borders. However, reindustrialisation and the resilience of established hub markets, combined with cooling cost inflation, is creating opportunities.

The International Monetary Fund, in its recent World Economic Outlook, has predicted slow growth across the Euro area in 2024, which is expected to see GDP increasing at just 0.8 percent this year, marginally up from 0.4 percent in 2023.

Ireland is perhaps an outlier, predicted to break out of recession in 2024 and grow by 1.5 percent. This is owing, at least in part, to its position as an active, post-Brexit market that has been comparably less affected by the war in Ukraine than its European neighbours. Spain is also ahead of the pack with 1.9 percent forecasted growth driven by a revival in hospitality and new industrial opportunities.

Current tendering condition

Future market outlook

Targeting new opportunities for growth

The overall trend in construction pricing is for a cooling in the rate of inflation. Sector hotspots include a continued boom in data centres, as well as advanced manufacturing facilities – particularly battery gigafactories.

Industrial sectors require both vast amounts of land and ready access to reliable power, which is driving demand outside established urban centres.

Leisure investment is also increasing, including in hotels and stadiums as Europe gears up for both the Paris Olympics and the Men’s European Football Championships in Germany this summer. This has driven investment in the French capital – one of the few markets where cost escalation is due to nudge up by 0.1 percentage points this year.

This reflects constraints in the market, including where domestic contractors have been facing larger issues around accessing credit, which in turn has made it harder to meet the cost of production.

The recently announced Net Zero Industry Act is just one measure that the EU is driving to help support investment in green manufacturing and technology. This comes in response to the US’ own raft of initiatives around the Inflation Reduction Act.

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Adapting to commercial development challenges

A market contraction in more established real estate sectors, such as housing and offices, is expected to ease in anticipation of falling interest rates and corresponding improvement in access to private finance and general confidence. Local conditions are also playing their part.

Dublin has been buoyed by investment into both private and public sector housing developments on the back of an acute rental crisis in the Irish capital. This is reflected in construction demand, with a high-rise apartment in the Irish capital costing on average US$3,666.9 per m².

Purpose-built rental accommodation for specialist markets is also booming, including student accommodation around key education hubs like Munich, where prestigious universities are looking to expand ‘campus living’ with all amenities located around new student housing developments.

A similar emphasis on specification is seen outside education too, as tech companies look to encourage workers back into the office by developing high-specification work campuses and fit-outs. In Munich, this demand is pushing the price of a high-rise, high-specification office space up to US$5,608 per m².

Labour pricing continues to constitute a substantial part of cost increases. A limited pool of suppliers has caused the average price of labour to reach US$84 per hour in the German industrial hub. This is the third highest across the entirety of Europe, only falling short of Zurich and Geneva, which continue to hold top tier spots in global labour cost rankings.

Costs are being exacerbated by wider geopolitical tensions, most prominently through the war in Ukraine and conflict in the Middle East, which have strained labour capacity and the movement of goods and led to greater instability across the continent.

Green investment to accelerate opportunities

Alongside financial cost, carbon is an increasing priority within development. Our own data indicates that the majority of projects in Paris, Brussels and Amsterdam are now making significant commitments towards net-zero carbon. This has been led by government regulations, but also rising consumer and employee expectations, and it is widely expected that this will only increase over time.

This also has a bearing on resources. Heading into 2025 and beyond, there will be a need for greater investment into cultivating the right pipeline of green-collared, skilled labour. This will matter even more as market confidence improves to avoid curbing investment pipelines with a capacity crunch.