3 minute read
European Property Markets
EUROPEAN REAL ESTATE, BUSINESS AS USUALS
A year in Review Investment in European commercial real estate was back in line with pre-COVID levels in 2021, reaching €272.7bn, a 15% increase compared to 2020 levels. Across the asset classes, logistics was the overall winner with investment into logistics up by 51%, reaching an all-time high. Office investment increased by 10% and hotels by 33%, while retail investment did not fair too well over the course of the year (-7%). Country wise, there were significant improvements in investments in the UK, Germany, Sweden and Spain. Investment volumes in France, the Netherlands and Belgium remained below pre-COVID levels.
Over the course of the year, yields were fairly stable for prime offices *and even for prime high street retail for most part. No surprise, prime logistic yields continued to compress. Prime rents also surprised, with the prime market not taking much of a hit and instead in some markets prime rents, particularly for offices, climbed higher than before the onset of the pandemic.
Take-up began to recover from the second quarter of the year as lockdowns and restrictions eased. Across Europe’s 17 main markets 8.52m sqm was transacted in 2021, which although is below the pre-crisis levels (-8%), has continued to improve across the rest of the year and we expect it to continue on this trend.
New phase of the real estate cycle The increased activity into real estate over the course of 2021 points to the fact that we are now entering a new phase of the real estate cycle. In this cycle we can expect to see more of what we have seen during the pandemic, with strong investor interest towards non-traditional asset classes.
ESG will play an increasingly important part this year. This is partly a result of the real estate sector alone contributing to approximately 30% of global annual greenhouse gas emissions, with investors and occupiers now beginning to look into making significant changes to address this. Therefore, we will see more focus on futureproofing of assets in the traditional sectors as well as an increased focus on acquiring modern assets, particularly for offices. This is likely to lead to a widening of the gap between the market average and prime.
Logistics: No signs of cooling The logistics sector will continue full steam ahead, with no signs of cooling. It had its most successful year in 2021, setting yet another new record for volume of letting transactions over just nine months of the year, increasing by 29% in the six most active markets. The sector continues to benefit from growth in consumer demand, however will soon have to tackle issues on the horizon, one of which is limited supply. Speculative development remains limited. As a result, we anticipate strong rental growth across the sector. It will continue to remain a strong sector of interest. In 2021, €40 billion was invested into European logistics, which is an increase of 59% on the year before. As there is strong competition for any produc,t we are likely to see further yield compression on the back of the compression we have already witnessed during the pandemic. Retail: the only way is up? The retail sector has had a difficult time over the last few years, particularly badly hit during the pandemic. Over 2021 retail investment in Europe was €24.4bn, down 12% on 2020. All
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countries witnessed a decline in retail investment apart from the UK (+64%) and Ireland (+ 260%).
During the course of 2021, investors began showing interest back into retail. Investors are now seeking opportunities particularly in shopping centres. This year will be a turning point for the sector. We do anticipate retail to stabilise over 2022 as footfall begins to resume to pre-pandemic levels across high streets. Last year we saw investors favour retail parks and supermarkets across Europe, something we are likely to witness further this year.
