Emerging Trends in Real Estate®: Europe 2023

Real estate leaders are finding political instability and economic uncertainty is replacing the worries of the pandemic. 2023 will be defined by real estate investors prioritising long-term stability and a renewed focus on how the industry conducts its business.

This report is a joint survey by PwC and the Urban Land Institute. Now in its 20th edition, the survey provides an outlook on real estate throughout Europe for the near-term and 2023. As European economies have started to recover from the pandemic, they have now been disrupted by the ramifications of the war in Ukraine. Beyond the immediate human impact, inflation, driven by rising energy costs, is altering the outlook for real estate in the coming year.

While the industry leaders canvassed report little direct impact on their property portfolios from Russia’s invasion of Ukraine, the war’s consequences are seen in surging energy costs, above-average inflation and, latterly, rising interest rates. 

Real estate business confidence and expectations of profitability have dropped to a low level, reflecting widespread industry concerns across an array of indicators for the business, political and real estate environments. Seven out of 10 survey respondents believe Europe will move into recession before the end of 2022.

The survey also found 91% respondents are concerned about inflation, closely followed by interest rate movements (89%) and European economic growth (88%). Political uncertainty at the global, regional and national level are of high concern, as selected by 79%, 68% and 54% of respondents respectively. 

Opportunities for growth and a good return on investment still exist, but the equation of what makes a good deal has changed.

Although leasing activity across Europe has held up reasonably well in 2022, there is a widespread belief that a recession will lead to occupancies and rents falling, even in previously robust sectors. The real estate market is always evolving and 2023 will reward those who evolve their portfolios.

Residential real estate remains highly prized, being seen as having more income stability than commercial sectors. Specialised sub-sectors, such as retirement and senior living developments, aimed at ageing populations, are generating specific interest.

Perhaps the brightest driver of change is the rise of ESG. The real estate sector, from construction, to finance, to operations, is making environmental, social and corporate governance concerns a part of business decisions. This includes everything from reducing emissions to diversity and inclusion within the organisations. The survey found 87% of respondents see the importance of creating social impact alongside financial return.

There is no single discussion you will have with any peer in real estate that does not end up referencing ESG and decarbonisation.

European head of asset management

“The housing crisis hasn’t exactly gone away in most European cities. It is there as it was before. If anything, supply is a bit more constrained and pricing is continuing to increase, and therefore so are rents.”

Global investment manager

The top issues highlighted in the report include:


Inflation will affect every aspect of the real estate sector. During the pandemic, supply chain issues led to the increased price for many inputs, such as lumber. Supply chains remain disrupted but are feeling the added pressure of increases in energy prices, making transportation more expensive.

The big fear is over the pressure on commercial real estate values, which has been well signalled in the listed sector as discounts to net asset value continue to deepen. A fall in direct property values is now regarded as inevitable, with the pricing between prime and secondary real estate expected to widen. A shift in loan-to-value percentages will impact deals that need cheap money to be financially attractive.

However, most industry leaders canvassed for this report agree that the prospects for real estate have not completely fallen off a cliff, at least partly because the asset class is long regarded as a hedge against inflation. The interviews and roundtables indicate this has attracted some investors in 2022.

With the prospect of falling values, the coming year could be a great buying opportunity for core investors that are still under-allocated to the sector, one such investor points out. This would represent something of a shift from the last few years when, as highlighted in Emerging Trends in Real Estate® Europe, the high price of existing prime assets led some investors to pursue “develop-to-core” strategies.

Political instability

In a globalised economy, with international investors and developers building real estate portfolios in multiple countries, no country exists in isolation. The second highest social-political concern is international political instability (79%) with European and national political turbulence raising worries. 

Only around half of this year’s survey respondents expect to be net buyers of European real estate next year. This figure is down on last year (59%) and slightly more bearish than survey respondents were during the pandemic—55% were net buyers in our previous report. If anything, however, sentiment has dipped further since the survey was conducted in the summer.

Despite the overall uncertainty about the near future, the interviews and roundtables conducted for the report reflect differing views across asset classes, specialisms and geographies. There is a flip side to distress in a downturn, according to the CFO of a Nordic real estate company: “It is in troubled times that the best deals are made, and I believe that the coming time will open up opportunities for those who have access to capital.”

ESG and sustainability

For an overwhelming 93% of the industry leaders surveyed, running an environmentally and socially sustainable business is the most important factor for successful organisational transformation in real estate over the next 20 years.

ESG is not simply a ‘nice to have’ as regulators, investors and current and potential employees are all making demands for improved performance. Financially, a clear ESG roadmap can help calculate risk more effectively, potentially improving financing and insurance terms.

Nearly 90% of respondents highlight the importance of creating social impact alongside financial return over the next 20 years, while 60% identify the importance of increasing diversity within their organisations. Diversity, equality and inclusion (DEI) initiatives have the potential to build creativity and resilience in organisations that have sometimes been monocultural.

With the possibility of recession for the whole of Europe, overall investment and development prospects for all 30 cities covered by Emerging Trends in Real Estate® Europe have deteriorated since last year’s report.

Where last year there was a unifying, pan-European recovery from the economic consequences of COVID-19, this year’s survey and interviews reveal a much more fractured response to highly challenging market conditions—and significant differences in the potential resilience of the cities.

Though the city rankings have a familiar look—London retains the top spot while Paris takes over second place from Berlin—the overall investment and development prospects for all 30 cities covered by the report have declined since last year’s survey.

City rankings - Overall prospects




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“The rotation from traditional commercial real estate to other parts of the built environment is here to stay.”

UK fund manager

Looking ahead

Over the 20 years we have been producing Emerging Trends in Real Estate® Europe we have seen a change in the concept of what real estate is. It has expanded beyond the realm of office, retail and industrial into a hugely diverse menu of investable assets. The early 2000’s ushered in the digital age leading to the rapid growth of e-commerce which changed the type of assets retailers required. More recently there has been the emergence of the Build to Rent market and rising demand for flexible workspaces. 

The next two decades will be much more about just how the industry oversees a blurring of the distinctions between the many and varied property types.

As industry leaders agree, advancing technology and changing consumer habits have already helped boundaries fall away between traditional sectors. “We are starting to enter a world where users are agnostic to asset classes. They can use it like retail, offices or industrial and logistics if they want,” says a venture capitalist.

However, to make this work investors and developers must get the business fundamentals right. The global financial crisis of 2008 showed that. The future of real estate will require recalibration from the practices developed during a decade of cheap money to the new financial realities and socio-political factors. For those that can make the recalibration, opportunities still exist.

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