Covid-19 pressures European real estate investment volumes in Q3
Bumper Q1 Boosts Year-to-Date Volumes
Total real estate investment in Europe reached €48bn in Q3 2020, a decrease of 37% on the same period last year, according to the latest data from global real estate advisor, CBRE. This brings investment volumes in Europe to €183bn for the first nine months of 2020, 11% down on the same period last year.
Whilst investment volumes fell 37% in both Q3 and Q2 as the impacts of the Covid-19 pandemic were fully realised, investment volumes in Q1 2020 reached an all-time high due to a number of large transactions in Germany, the UK and The Nordics.
Some markets have performed better than others amid the pandemic, with volumes correlating strongly to the extent countries have kept the virus under control. Switzerland was the only country in Europe to see an increase in investment activity during the Covid-19 period, as investment activity rose 24% for the first nine months of 2020 and 124% up in Q3. Investment volumes in Germany were up 10% for the first nine months of 2020 and decreased 31% in Q3, a more moderate fall than for Europe as a whole.
All asset classes have been impacted by Covid-19 but Logistics continued to be the most resilient sector. Whilst Logistics investment volumes were up 3% for the first nine months of this year, they were down 9% in Q3 compared with the same period in 2019. Similarly, Multifamily posted volumes roughly equaled 2019 across the first nine months; however, volumes were down 49% for the Q3 period. Retail has also performed reasonably well, with investment volumes on par with last year across the first nine months and 18% down in Q3. However, Retail investment activity was highly constrained in 2019 as the sector was already challenged by ongoing structural shifts. Hotels and Offices have been the sectors most affected by the Covid environment. Hotel investment was down 57% for the first nine months of the year whilst Offices was down 24% for the same period.
The slowdown in investment activity has had a divergent impact on pricing. On one hand, we have seen continued competition for Multifamily and Logistics assets, as well as prime Offices in Germany, France and the UK. This has resulted in renewed yield compression for Offices in the key German cities and in Paris, reflecting a flight-to-quality trend that we expect to continue. Occupiers are seeking high quality, flexible and healthy workspaces, which is echoed in investor appetite. On the other hand, pricing has come under pressure for core-plus and value-add Office properties as well as Hotels and mainstream Retail. For Hotels, in particular, we anticipate distressed asset sales in the coming quarters.