European investment volumes hold up better than expected amid economic fallout from the pandemic
•Total 2020 investment volumes in Europe down 17% on 2019 •Germany most liquid European investment market in 2020 •Healthcare, Industrial and Multifamily attracting more capital Y-o-Y
Commercial real estate investment volumes in Europe reached €275bn in 2020, according to global real estate advisor, CBRE. This represents a 17% decrease from €331bn in 2019, a better performance than was initially anticipated in light of the Covid-19 pandemic.
Germany saw the highest level of investment in Europe with total investment volumes reaching €79.3bn, down just 5% on 2019, which saw record volumes. The Nordics also had a strong performance, with total investment volumes reaching €43.4bn, up 1% on the prior year. The UK was the second largest investment market in Europe, with a total investment volume of €45.8bn, down 25% on the previous year and France was the third largest with volumes totaling €29bn, down 39% on 2019.
The Healthcare, Industrial and Multifamily sectors demonstrated resilience throughout the pandemic, with investment volumes up on 2019 by 13%, 7% and 6%, respectively. Multifamily was the second largest investment sector in Europe, after Office, which saw investment volumes fall by 31% on 2019. Retail investment was down 6% on 2019, as the pandemic added to the pressures from ongoing structural changes to the sector driven by the growth of ecommerce. Hotels was the most affected sector, with volume declines of 66% versus 2019.
In Q4 2020, European investment volumes were €89.2bn, down 27% on Q4 2019, which had been the strongest quarter ever recorded. However, the final quarter of 2020 saw both the Nordics and the Netherlands achieve record-breaking quarterly investment activity of €16.2bn and €8.7bn of investment respectively. Q4 2020 was also the strongest quarter on record for the Multifamily sector, which saw €19.9bn of investment, whilst the European Industrial sector saw €15.8bn of investment, the second highest quarterly volume on record.
Covid-19 was a black swan event that has had a significant impact on the real estate investment market. The ongoing immunization process is providing the market with some much-needed optimism but the start of the year has been challenging with high infection rates across Europe. Structural drivers will continue to affect the market and as such we expect the strong appetite for Logistics and Multifamily assets to continue. We also expect to see strong demand for core Office properties that provide high quality amenities for occupiers, particularly around wellbeing and ESG, as well as the ongoing demand from Life Sciences assets. This could result in yields tightening for these types of asset as demand is strong and will increase further once travel restrictions are loosened. Core+ office space is expected to see further repricing and is likely to start offering great value for investors toward the middle of 2021. Following the agreement of a Brexit deal, we anticipate higher demand for UK assets than we saw in 2020 with deeper and more geographically diverse bidder pools emerging for best in class assets.