Greetings from the sun-kissed Greek Riviera, where the economy is warming up as pleasantly as the weather. Greece recently topped the Economist Intelligence Unit (EIU) rankings for the most improved business environment, a testament to its pro-business government and improved finances. While I'm certainly enjoying the picturesque setting, rest assured I'm here working diligently on your behalf, planting a considerable MetaWealth flag in preparation for the summer months. More exciting news to share soon, so stay tuned.As we enter the second quarter of 2024, the global investment landscape continues to exhibit a cautious optimism, with pockets of growth emerging amidst the broader economic uncertainty.

‍

‍

A Tale of Two Economies

‍

While the US economy charges ahead, bolstered by robust job creation – with 300,000 jobs added in March alone – and GDP growth projections soaring to 2.7% for 2024, Europe finds itself in a more precarious state. The region has teetered on the brink of recession, with performances diverging across nations. Italy and Spain have exhibited signs of economic revival, while France remains stagnant, and Germany grapples with a decline. This stark divergence has complicated policy decisions for central banks, navigating the intricate mosaic of economic landscapes.

‍

‍

Central Banks Grapple with Inflation

‍

The US Federal Reserve has held firm on interest rates, concerned that premature easing could reignite inflation, which is currently hovering above 3% and sliding away from their target of 2%. In contrast, the European Central Bank has hinted at rate cuts as early as June,aiming to stimulate its weaker economy, despite the risk of importing inflation through a weakened euro.

‍

‍

Balancing Act: Consumers, Businesses, and Governments

‍

The high interest rate environment is squeezing consumers, companies, and governments alike. US mortgage rates hover around 7%, global businesses face higher debt servicing costs and weakened consumer demand, while the US government's debt service is projected to reach 3.1% of GDP this year and cross the $1 trillion mark by 2026. Navigating this delicate balance will be crucial in the quarters ahead.

‍

‍

European Real Estate: Navigating the Uneven Recovery

‍

Market Overview

In 2023, the European real estate investment volumes settled at around €149 billion, a significant 48% decrease from the five-year average. This steep decline was fueled by a confluence of factors, including record-high inflation, rising interest rates, economic sluggishness, and a misalignment between buyer and seller expectations. The reduced availability of affordable debt further compounded the issues, leading investors to adopt a more cautious approach throughout the year.

Sectoral Performance

However, a closer look at the individual sectors reveals a more nuanced picture:

‍

‍

Logistics: The logistics sector proved to be a standout performer, capturing 27% of the cross-border investment volume in Europe. Key markets such as the UK, Germany, the Netherlands, and Sweden witnessed robust activity in this resilient asset class.

‍Retail: The retail sector also displayed relative resilience, with investor interest gravitating towards prime high streets and urban shopping centres. These well-established locations continued to attract capital from investors seeking quality assets in strategic locations.

‍Hospitality: The hotel sector, buoyed by a revival in tourism activities, showcased the smallest decline among all asset types, accounting for 9% of the total cross-border investment volume. Destinations like Spain, France, the UK, and Portugal proved particularly enticing to investors.

‍Offices: In contrast, the office sector bore the brunt of the downturn, experiencing a sharp 71% decline in investment volumes compared to the five-year average and taking just 20% of investment volumes. This was largely attributed to decreased interest from American investors and an overall market aversion driven by the evolving post-pandemic work culture.

‍Residential and Multifamily: The residential and multifamily sectors, however, remained a bright spot, continuing to attract substantial investments. Driven by large portfolio transactions and active markets in countries like the UK, Germany, Spain, and Denmark, this sector's resilience can be attributed to the enduring demand for quality residential properties, fueled by changing lifestyle preferences and demographic shifts.

‍

‍

European Outlook

‍Looking ahead, the European real estate investment market is poised for a gradual recovery, with the logistics and multifamily sectors (beds and sheds) expected to lead the way. The anticipated interest rate cuts and economic stabilisation are likely to enhance the overall attractiveness of real estate investments in Europe, facilitating a cautious yet progressive return to more robust investment levels by the end of 2024.

The Post-Pandemic Kaleidoscope

‍In the wake of the global pandemic, the European real estate landscape emerges as a rich kaleidoscope of opportunities and challenges. Investment narratives take on unique hues across geographies and asset classes, necessitating a nuanced approach.

Mature markets like Germany and the UK present a repricing opportunity, a chance to capitalise as high interest rates hit home. German house prices fell over 10% in Q3 2023 alone and may drop up to 30% from their 2022 peak, whilst the UK continues its own recalibration.

Conversely, residential sectors in Spain, Italy and Romania burst forth with rising capital values and rental growth, fueled by supply and demand imbalances and robust economic growth - vibrant bright spots inviting attention. The trajectory looks promising for longer investment strategies, Romania for example continues to be one of the fastest growing economies in the EU and in 2023 overtook Hungary in GDP per capita terms, reaching 78% of the EU Average.

As this post-pandemic mosaic continues to shift, a discerning eye and adaptable strategy are paramount to securing optimal risk-adjusted returns across Europe in the coming cycle.

‍

‍

Real Estate Perspective

• 1B Sq Ft - Empty US office space (VC)
• 18.6% - Average US office vacancy (Mar '23) (VC)
• 58% - New residential development in China vs 2019 peak (VC)
• 5.2% - Prime global residential rents ('23) (Knight Frank)
• +11% - Sales of Global Super Prime Residential, $10m+ (Q4 YoY) (Knight Frank)

‍

Global Perspective

• 1 Billion - Indians heading to the polls (results 4th June)
• €1.5m - Amount Americans now say they need to retire (up 50% since COVID) (Bloomberg)
• $11.1T - Projected record global travel spend in '24 (vs $10T in '19) (Bloomberg)
• $5T - Estimated size for tokenized asset market (Citi) Bloomberg

‍

‍

Parting Thought

‍
As we navigate the intricate mosaic of these opportunities and challenges that define the investment landscape, let us embrace a pivotal mindset – one that recognizes the inherent duality of crisis and prosperity. The Chinese word "weiji" (危机), often translated as "crisis," is a powerful reminder that within every period of uncertainty, lies the seed of opportunity.

It is this philosophical essence that must guide our approach – the ability to perceive the pivotal moments amidst the chaos, and the wisdom to cultivate them into sustainable growth. Just as a tree, planted with foresight, eventually offers shade and respite, so too must we sow the seeds of strategic preparation today, reaping the rewards of a flourishing future. Embrace the pivot, for therein lies the path to enduring prosperity.