EXPO REAL 2024: Delegates’ Optimism is Gradually Rising Amid Expiring Risks

The mood among the 40,000-plus delegates at the annual EXPO REAL Conference in Munich was notably more upbeat compared to last year. The consensus was ‘cautious optimism’ driven by green shoots such as lower interest rates, stabilizing market values and transactions returning to the market. As major 2024 risk factors unwind—including uncertainties over interest rates, inflation and election risks—the outlook for European real estate markets is improving.

Below, we outline five themes drawn from this year’s event, across seminars, networking events and client and peer discussions.

1. Returning Liquidity Amid Expiring Risks

Liquidity is returning to European real estate markets after a period of protracted uncertainty, supported by easing inflation back to target levels which has allowed central banks to start to normalize monetary policy. As interest rates decline, EXPO REAL delegates expect more favorable conditions to revive capital markets. The unwinding of macro headwinds is bringing sidelined investors back, narrowing bid-ask spreads. The return of Australian, Malaysian and Singaporean investors was noticed at EXPO REAL, signalling renewed international interest.

There has also been a notable run-off of the “denominator effect,” where institutional investors became over-allocated to real estate due to misaligned valuation repricing between asset classes. The denominator effect, which peaked in the first half of 2023, forced many investors to reduce real estate allocations to meet internal asset allocation targets. Pension funds and insurance investors faced the difficult choice of selling quality assets at lower valuations or holding onto them through market uncertainty. Ultimately, a mix of both approaches was utilized. But these pressures to reduce real estate allocations are increasingly less applicable. As these pressures subside, a slow momentum is expected to build in the coming quarters with continued interest rate cuts driving investment activity, encouraging sidelined investors to return to the market.

Political uncertainty has faded throughout 2024, with elections in the U.K. delivering stability and certainty for investors. France remains resilient in the aftermath of June’s snap election, which underscored its fiscal challenges. The final major political uncertainty of 2024, the U.S. presidential race, could release U.S. capital into markets once resolved. Overall, the U.K., especially London, is well-positioned to attract international capital due to its political stability and real estate repricing. Meanwhile, Germany lags in repricing, potentially offering investment opportunities in the months ahead as inflation and energy pressures soften.

2. Refinancing and New Lending Outlook: Bright and Grim

Refinancing and new lending appetite among banks and alternative lenders is bifurcated. Finance liquidity is improving across the favored sectors of living, logistics, data centers and well-located shopping centers. Lenders are also showing more interest in repriced modern offices meeting the latest sustainability requirements and even office repositioning. Banks are open to new (re-)financing requests, focusing on the ability of investors and asset managers to execute business plans. However, enhanced credit analysis and due diligence mean longer financing processes and uncertainty in approval processes. Most banks are downsizing the loans on debt serviceability and are focusing on income metrics such as ICR and DY. A maximum LTV of 55% is targeted following repriced market values and strong sustainability credentials. Competitive margins are returning, with multiple term sheets now common for best-in-class assets.

Non-prime asset holders, particularly those who have not adapted to modern use cases, will face ongoing refinancing challenges throughout next year. Borrowers must inject significant equity to meet lower LTV ratios, support higher all-in interest rates and align with higher sustainability requirements. Lenders’ appetite for new deals is influenced by legacy issues in their loan books, particularly for U.S. offices, German logistics development and legacy retail. Banks highly exposed to concentrated sector problems are unlikely to finance new vintage deals in those sectors anytime soon.

Banks are generally reluctant to push borrowers into forced exits, preferring to extend loan terms rather than taking assets onto their balance sheets. In many cases, banks and sponsors have successfully secured short-term refinancing to cure breaches and avoid default. These arrangements have benefited from falling interest rates, improved debt serviceability and stabilizing values. However, non-performing loans (NPLs) persist, with some banks opting for the “pretend and extend” approach. Regulatory scrutiny is expected to increase, pushing lenders to quickly resolve issues. Basel 3.1 regulations may also impact bank lending strategies and increase pricing as banks update internal models and adjust their risk profiles and capital requirements.

2025 could bring a wave of distressed transactions, particularly in German offices and legacy retail. This creates opportunities for nimble investors to provide structured solutions to fill gaps in capital stacks or make acquisitions at discounted price levels. Across CBRE IM’s investment strategies, from core to value add, we are confident there is plenty of finance liquidity available for our programs at attractive pricing, based on the strength of our platform and our banking relationships.

3. Retail Renaissance and the Rising Appeal of Value-Add

The resurgence of the retail sector, particularly in southern Europe, was a recurring theme. Iberia is leading Europe’s retail recovery, emerging from a major repricing cycle, with yields stabilizing, strong operational performance and a cultural preference for in-person shopping in warmer climates. Well-located prime shopping centers with rebased net operating income (NOIs) are now available at competitive cap rates, making acquisition financing more accessible. Such deals were implausible two years ago, and difficult even last year, underscoring the retail sector’s rebound.

Residential and logistics remain sector favorites of investors and banks, given their strong fundamentals and consistent demand. Investor interest in European living sector niches—particularly multifamily, student accommodation and assisted living—continues to rise as political and regulatory risks fade. Capital flows are spreading across Europe, including cities in the Netherlands, Spain, Denmark and Sweden, driven by enduring supply-demand imbalances, an eagerness to put capital to work, and improved yields compared to pre-Ukrainian crisis levels. Data centers are also attracting increased attention from lenders, although many still view them more as infrastructure than traditional real estate.

More broadly, investor appetite is shifting toward value-add opportunities, aligned to sector-wide refurbishments necessary to meet evolving end-user demands. Redevelopment and modernization opportunities are abundant, including office-to-residential conversions such as purpose-built student accommodation (PBSA) or upgrading legacy assets to meet sustainability standards, offering significant upside potential. The office refurbishment trend is widespread across London, Amsterdam, Paris, Berlin, and Milan. As hybrid work models tighten and employees return to offices, demand for high-quality, well-located office spaces will rise. Despite challenges in the office sector, lenders remain supportive of best-in-class, future-proof offices, including repositioning strategies and brown-to-green transitions.

4. Green Transitions and Sustainability-Driven Financing

Sustainability was an ever-present discussion point among EXPO REAL delegates, emphasized by investors, occupiers, lenders and developers. Green asset transitions that prioritize energy efficiency and carbon neutrality have become a major catalyst of capital allocation, as regulations tighten across Europe, particularly in the office, logistics and residential sectors.

5. Outlook for 2025: Gradual Recovery and Opportunities in Distress

The outlook for European real estate is cautiously optimistic, driven by returning liquidity, increased demand for sustainability-compliant assets and growing appeal of value-add investing. The market is expected to recover gradually, spurred by further interest rate cuts, recapitalizations and capital returning to market from sidelined investors. Regulatory pressures on banks to resolve NPLs may push distressed assets onto the market, helping further reset valuations, particularly in Germany, where economic challenges have delayed price discovery.

Momentum could build over the next six months, potentially culminating in a FOMO trade by MIPIM 2025, as investors return with fresh capital and interest rates trend lower. The bifurcation between best-in-class assets and everything else will likely widen, with prime logistics and residential seeing the strongest demand. Meanwhile, secondary office spaces and retail will remain under pressure, as investors focus on repositioning opportunities. For investors with dry powder and a value-add strategy, the next 12-18 months present a window of opportunity to acquire and reposition assets that are well-located but in need of sustainability upgrades or modernization., These assets will generate higher returns as the market stabilizes and demand for sustainability-compliant real estate grows.