The outlook for the real estate sector in Europe, Middle East and Africa (EMEA) has changed from deteriorating to neutral, according to Fitch Ratings’ latest analysis.

The ratings agency said that the worst of commercial property valuation declines in the region are over, while sentiment has also improved, and interest rates are not likely to move upwards.

The change in outlook reflects a largely complete recalibration of asset values to higher interest rates and improved access of sound property companies to bond markets.

“This is a notable shift since last year, which was accompanied by the sector facing unreceptive bond markets that were waiting for asset values to settle,” Fitch said.

“From 2022 until end-2023, real estate companies predominantly used bank funding and disposals to meet their scheduled debt maturities, but, since December 2023, bond market access for stronger companies has improved significantly, which, in turn, improved their funding options.”

The ratings agency noted that there has been strong tenant demand for offices in prime locations that offer flexible space, and that good ESG credentials is driving up office rents in major western Europe central business districts, where there are fewer vacancies.

Landlords in the retail sector, particularly those that invested in shopping centres, have also noticed rising rents, while the logistics asset class continues to post solid growth.

Fitch had previously forecast deteriorating sector outlook for EMEA real estate this year. It said the sector was adversely affected by the recalibration of asset values to higher interest rates.

(Writing by Cleofe Maceda; editing by Seban Scaria)