Europe commercial real estate market 2023-2027: A descriptive analysis of five forces model, market dynamics, and segmentation

Source : Technavio

According to Technavio, the Europe commercial real estate market size is estimated to grow by USD 80.59 billion from 2022 to 2027. The market is estimated to grow at a CAGR of 5.55% during the forecast period. Moreover, the growth momentum will accelerate.

Commercial real estate market in Europe – Five forces

The commercial real estate market in Europe is fragmented, and the five forces analysis covers – 

  • Bargaining power of buyers 
  • The threat of new entrants
  • Threat of rivalry
  • Bargaining power of suppliers
  • Threat of substitutes

Commercial real estate market in Europe – Customer landscape 

The report includes the market’s adoption lifecycle, from the innovator’s stage to the laggard’s stage. It focuses on adoption rates in different regions based on penetration. Furthermore, the report also includes key purchase criteria and drivers of price sensitivity to help companies evaluate and develop their growth strategies.

Commercial real estate market in Europe – Segmentation assessment

Segment overview
Technavio has segmented the market based on end-user (offices, retail, leisure, and others) and type (rental, lease, and sales). 

  • The offices segment will grow at a significant rate during the forecast period. Office account for 35% of all new jobs created across the world, which will facilitate market growth during the forecast period. Moreover, the demand for office space is expected to increase with the economic expansion and the employment situation. Thus, the growth of the office sector is expected to fuel the demand for commercial real estate in Europe.

Commercial real estate market in Europe – Market dynamics
Key factor driving market growth

  • The growing aggregate private investment is driving the market growth.
  • Aggregate private sector investment refers to the investment by individuals and firms in tangible assets such as land, commercial buildings, and commercial offices.
  • Investments in business sectors such as land, offices, and other physical structures account for the largest share of total private investment.
  • Most corporate investment is in hardware and software, with the rest spent on physical structures such as buildings, land, and business offices.
  • Growing investments in industries have increased the demand for commercial real estate consulting services that help investors in planning strategies and investments.
  • Thus, with growth in industrialization, a significant rise in the total investments of private companies is expected, which will fuel the growth of the commercial real estate market in Europe during the forecast period.

Leading trends influencing the market 

  • Increasing investments in the commercial real estate market in Europe is a key trend in the market.
  • For instance, 23% of companies in Germany plan to increase investments.
  • In the UK, 82% of investors plan to grow their international business
  • In addition, in France, 64% of real estate experts intend to increase their international investments.
  • Similarly, in Spain, 42% of investors intend to become more active internationally.
  • These factors are expected to support market growth during the forecast period.

Major challenges hindering market growth

  • Increasing interest rates are challenging the market growth.
  • Some of the biggest lenders in Europe are dealing with the increasing defaults on commercial real estate.
  • The demand for space in many commercial properties is expected to decrease, which could lower rents.
  • Moreover, the recent sharp increase in interest rates in Europe is driving the cost of debt for landlords.
  • A significant decline in commercial property values can violate the debt covenants included in bank leases, which could potentially lead lenders to foreclose on distressed properties.
  • These factors will impede market growth during the forecast period.