London Remains Most Attractive City For European Real Estate Investment, CBRE Survey of Investors Finds

  • Germany expected to lead investment activity in 2022
  • Office preferred sector for investors followed by Multifamily
  • 60% of investors expect to deploy more capital in 2022 than in 2021

London was cited as the most attractive city for European real estate investment in 2022 for the second consecutive year, according to CBRE’s 2022 EMEA Investor Intentions Survey, released today. Paris and Amsterdam completed the top three, followed by Berlin and Frankfurt, reflecting continued positive investor sentiment toward German cities. 

With three cities appearing in the list of investors’ top ten preferred cities (Berlin, Frankfurt and Munich), Germany was also ranked highest in terms of expected performance, with just over a quarter of cross-border investors expecting the country to perform best in 2022. This follows a record-breaking performance in 2021, when investment volumes in Germany increased 39%. The UK was ranked second overall, up from fifth place in 2021, with just under 25% of investors expecting the country to perform the best in the year ahead, signaling a return of investor confidence. 

According to the report, 60% of investors expect to buy more real estate in 2022 than they did in 2021. This is particularly notable as 2021 investment volumes in Europe closed at an all-time high, providing another indication of improving investor sentiment across European markets. 

Unsurprisingly, the survey results also demonstrated continued investor focus on the adoption of ESG strategies. In 2022, 70% indicated that they have already implemented ESG criteria in their investment practices, a four percentage-point increase from last year. Asset enhancement was identified by 80% of investors as the primary way of meeting ESG criteria. 

Despite the widespread adoption of hybrid working as a result of Covid-19, Offices were found to be the preferred asset class among European investors. In this year’s survey, 39% of investors indicated Offices were their preferred property sector, a three percentage-point increase from last year. This improved sentiment for the future of the office was corroborated by the data looking at the demand for physical office space. In 2022, 47% of respondents expected similar or higher demand for physical office space in the next three years, compared to just 31% in 2021. Most investors that favored Office signaled that they are primarily seeking Grade A assets in centralized locations, indicative of an ongoing flight to quality. 

In addition to Offices, Multifamily again attracted strong interest, and was the preferred asset class for 23% of investors, followed by Industrial and Logistics at 21%. 

Pricing expectations have strengthened considerably since last year’s survey, with Offices seeing a strong rebound. Over 80% of respondents expect office pricing to remain stable or increase in 2022, compared to 14% who held this expectation last year. Furthermore, the two sectors hit hardest by the pandemic, Hotels and High Street Retail, saw the overall percentage of investors seeking discounts drop by 34 and 24 percentage points respectively. Class A Offices, Multifamily and Industrial and Logistics are the sectors where pricing is expected to remain the strongest. 

Value-add strategies were also the focus of strong interest in the 2022 survey. According to the findings, investors are increasingly turning to value-add opportunities in search of higher yields. This was particularly evident in the UK where 45% of respondents selected value-add as their preferred strategy, while only 12% opted for core. Investors from Germany and France were more conservative with 35% and 30% choosing value-add and 19% and 20% opting for core, respectively. 

Chris Brett, Managing Director, EMEA Capital Markets, CBRE

As the market continues to recover from the pandemic, the positive sentiment to deploy capital is stronger than ever and investors are optimistic that investment volumes will continue on the upward trajectory we witnessed last year. This will be supported by the likely continued easing of Covid-19 restrictions throughout 2022 and the return of overseas investment, which will further boost capital flow. The improved sentiment for Offices points to the ongoing recovery of the sector, and we expect investment volumes to increase in step with this recovery. Multifamily and Logistics were unsurprisingly high on investor wish lists given their resilience throughout the pandemic. An increased appetite for value-add opportunities, particularly in the UK, demonstrates investor willingness to move up on the risk curve in response to competitive pricing and the weight of investment capital exceeding the availability of stock.

Chris Brett, Managing Director, EMEA Capital Markets, CBRE