How Rate Hike Expectations Are Shaking Up Europe’s Real Estate Market

Europe’s real estate sector faced a sharp decline, hitting a five-month low on Wednesday, as investors brace for interest rate hikes from both the Federal Reserve and the Bank of England (BoE) this week. The STOXX real estate sector index (.SX86P) dropped by 3.6%, its largest daily decline since December, while the pan-European STOXX 600 index (.STOXX) rose by 0.4% at 1408 GMT.

Investors are concerned that the tightening financial conditions, coupled with the expected rate hikes, will further impact the already beleaguered real estate sector. The sector has struggled to keep pace with the wider market and underperformed the STOXX 600 index on Wednesday.

Shares of Luxembourg-based real estate company, Aroundtown (AT1.DE), saw the biggest decline in Europe, falling by 10% on the day, amid worries that the company may cancel its dividend, according to two traders.

The surging inflation data released by the UK on Wednesday has raised the likelihood of a 25 basis point BoE rate hike when it meets on Thursday. Investors are also anticipating a 25 bps rate hike by the Federal Reserve later in the day. With these expectations, the real estate sector is likely to remain under pressure in the near term.

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