Feature: REAL ESTATE: MORE THAN AN ASSET
Property’s prime directive While a flight to quality continues to define the real estate investment climate, investors are aware that even their bestperforming assets will need to align with a low-carbon future. Doug Morrison reports
T
he resilience of real estate income has proven its worth to investors in the face of the economic fall-out from COVID-19 and, according to leading consultants, it’s the key reason behind the resurgent transaction activity across Europe over the past year. This shows no sign of tailing off, albeit such strong demand comes
with important caveats around short-term macro headwinds, the long-term structural challenges facing real estate and an increasingly important environmental, social and governance (ESG) agenda. Knight Frank predicts that 2022 will be a record year for global cross-border real estate investment, with EMEA as a whole potentially capturing more than
60% of all cross-border activity. The firm identifies US investors as a major provider of capital, accounting for almost half of inbound demand. All sectors are likely to benefit from this influx of capital, Knight Frank suggests, while Europe’s largest and most liquid markets — the UK, Germany, France and the Netherlands — will remain the most popular destinations. According to Savills, European commercial and residential investment volumes recovered by as much as 9% to around €288bn in 2021, and the firm is forecasting a 2% increase to €295bn this year. In other words, overall volumes are back to pre-pandemic
levels although the industry is far from complacent. Richard Holberton, CBRE’s senior EMEA research director, believes that the European Central Bank will keep base rates on hold until 2023 and accordingly the current outlook remains broadly favourable to prime property. Even if there were to be a modest rise in interest rates across the eurozone, prime property yields should sharpen in the near term as economic recovery drives rental growth, offsetting any small increase in the cost of capital. But Holberton concedes: “There are risks to this view.” The main concern is that the current, above-average inflation continues for much longer.
Nuveen’s jointly-held portfolio with Neinver — including Amsterdam The Style Outlets — won five stars from GRESB in 2021
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