London most attractive city for European real estate investment
Germany expected to lead post-pandemic investment recovery in Europe
London is considered the most attractive city for European real estate investment in 2021, reflecting its continued appeal and importance in a post-Brexit world, according to CBRE’s 2021 EMEA Investor Intentions Survey, released today. Berlin, Frankfurt, Paris and Amsterdam completed the top five with Munich and Hamburg ranking sixth and seventh respectively, reflecting positive investor sentiment towards German cities.
With four cities appearing in the list of investors’ top ten preferred cities, Germany is set to lead the investment recovery in Europe, with respondents indicating that they believe Germany will recover to pre-pandemic investment volumes most quickly. This is reinforced by the fact that actual investment volumes In Germany for 2020 were just 5% below 2019 levels. The Netherlands, France and Sweden ranked second, third and fourth respectively, with the UK completing the top five recovery markets. The survey was conducted in December 2020, just prior to the UK and EU reaching agreement on the terms of the post-Brexit relationship. The uncertainty about whether an agreement would be reached, and under what terms, is likely to have negatively impacted investor expectations of the UK’s recovery.
Another indication of improving market sentiment across Europe was that almost 60% of respondents expected to buy more real estate in 2021 than they did in 2020. Of these respondents, nearly 75% expected to purchase 10% or more this year compared to last, but some noticeable differences exist between countries. Over 80% of UK investors indicated a willingness to deploy more capital.
Despite the rise of remote and flexible working as a result of Covid-19, Offices were found to be the preferred asset class among European investors. In this year’s survey, 35% of respondents indicated it was their preferred property sector, reflecting a notable positive market sentiment about the long-term future of high-quality offices. Multifamily is starting to close the gap and was the second most popular property type at 24%, followed by Industrial and Logistics at 22%. Unsurprisingly, Class A Offices, Industrial and Logistics and Multifamily are the sectors where pricing is expected to remain strongest while most investors are expecting sizeable discounts for certain types of Retail and Hotel assets and for lower quality Office properties.
Given the uncertainty around the pandemic and its impact on economic and real estate fundamentals, over 50% of respondents indicating a preference for core and core-plus strategies in 2021. Additionally, investors demonstrated a stronger focus on the adoption of ESG strategies, with two-thirds of respondents indicating that they have already adopted ESG criteria in their investment practices. UK-based investors were the most focused on ESG, with 89% of respondents already having adopted ESG strategies.
The expectations of higher purchasing activity uncovered by this year’s survey reflect investors’ cautious optimism towards 2021 – which was also recorded in Asia Pacific and Americas. Provided vaccination campaigns remain on schedule, CBRE expects European investment volumes to increase by up to 5% year-on-year this year, although there is likely to be some variance across countries and property types. Since we closed our survey, inflation has been moving up in a few markets across Europe. For now, this does not seem to be affecting investment strategies of real estate investors, but it is a trend we will keep on watching very closely.
As the global search for yield continues, more investors are looking to access the real estate sector and all major European markets are set to benefit. The certainty around Brexit has changed the mindset of some investors and pumped a renewed confidence into the London market, where we expect to see a lot of European capital deployed over the next 12 months. Likewise, German investment volumes proved remarkably resilient throughout the pandemic and so it is no surprise that investors are confident in this country’s recovery. We are confident that a broader recovery will be underway by H2 2021, with a strong focus on core assets in Office, Logistics and Multifamily sectors.