UBS: Is core European real estate pricing overheating?

At the start of the COVID-19 outbreak, the idea that core European real estate pricing would in many markets be higher in 18 months’ time would have been almost unthinkable, reported UBS. But with governments pumping liquidity into the financial system, economies rapidly recovering and interest rates stable at record low levels, that is the situation we find ourselves in.

As the pandemic is coming to an end, however, considerable challenges are still ahead for European real estate. Government support schemes are being wound down, construction costs are soaring, and the pandemic-induced structural shift in occupier markets are yet to be fully realized at the cash-flow level. With core property yields at record low levels, investors need to ask if those risks are being accurately priced in or whether a bubble is forming due to the surplus liquidity chasing the market.

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