- Commercial real estate prices will continue to decline for the time being due to increased interest rates, ING expects.
- “Investors now believe that the risks and returns are disproportionate to the price of real estate,” says economist Mirjam Bani of the bank.
- According to ING, the recovery in the commercial real estate market will take place in the second half of 2024, after prices have first reached their lowest point.
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The malaise on the market for offices, retail properties and rental properties will end by mid-2024. That is the expectation of ING economists.
Commercial real estate prices are currently falling, partly due to rising interest rates.
ING believes that commercial real estate will continue to do quite poorly in the coming months. “Investors currently believe that the risks and returns are disproportionate to the price of real estate. Therefore, the price now drops until the equilibrium between supply and demand is reached again. As soon as demand increases, the price will also pick up,” says Mirjam Bani, Commercial Real Estate economist at ING.
It is expected that the prices of offices and shops in particular will continue to decline in the near future. Due to the rise of online shopping, there has been less demand for retail properties for years.
The demand for office buildings may change structurally, because the effect of working from home will only become visible in the coming years, says the ING economist. At the same time, many shop and office buildings are being transformed into residential space, which brings supply and demand back into balance.
Real estate market will recover in the second half of 2024, ING expects
According to ING, the recovery in the commercial real estate market will take place in the second half of 2024, after prices have first reached their lowest point.
The prices are then adjusted to the higher interest rates and the uncertainties that investors now see in the market.
How the market recovers varies per real estate segment. Bani expects recovery in each of the four segments (rental properties, offices, shops and logistics) from mid-2024.
The prices of rental properties, logistics real estate and offices in easily accessible locations will fall the least due to the limited supply and high demand, the economists think.