Two major shifts are taking place concurrently in European real estate which will have profound influence on outcomes for real estate investors - a cyclical downturn fuelled by the coronavirus pandemic, and the emergence of long-term structural changes in real estate itself. The picture of an industry in flux is the clear takeaway from the 18th edition of the annual survey by PwC and the Urban Land Institute on trends and developments in the European real estate industry.
The study, "Emerging Trends in Real Estate - An uncertain Impact: Europe 2021" elicited responses from 995 representatives of real estate companies, investment managers, property developers, institutional investors, lenders, exchange-traded real estate funds and developers in Europe.
The survey showed that 55% of investors expect to be net buyers of real estate in 2021, but “security of income in non-core assets is causing concern”. Overall, the survey shows a marked decline in business confidence for 2021, with almost half of all respondents expecting a fall in profits. Nonetheless, real estate generally is still seen as one of the few asset classes to generate acceptable returns at a time of low or negative interest rates, the report said.
Germany will be a beneficiary, with its cities remaining ‘safe havens’ for real estate investors and its domestic economy in robust shape, despite the pandemic. Respondent viewed favourably the lockdown measures and general handling of the crisis by the German government, while the availability of office, residential and logistics real estate in the German market remains low.
Thomas Veith, Real Asset Leader at PwC Germany, said: “Compared to other European countries, Germany has so far come through the crisis relatively well. This has consolidated the status of Germany's major cities as a safe haven for real estate investments.”
Berlin is predicted to be the top destination for real estate investors in 2021, a year which is also expected to favour investments in data centres, logistics and life-science properties. Berlin tops the list in the ranking of European cities with the best investment opportunities for the coming year. Frankfurt (4), Hamburg (6) and Munich (7) also feature among the European Top 10, and are viewed as having similarly high liquidity and stability over the long term as London (2) and Paris (3).
London was ranked fourth last year - but is becoming more attractive again due to the prospect of possible price declines for top properties as a result of Brexit. Last year‘s favourite Paris has fallen back, but remains an attractive investment target for logistics, residential and office real estate in the long term. France's capital will benefit from the €26bn infrastructure project "Grand Paris" and the 2024 Summer Olympics. Amsterdam remains in 5th place thanks to its innovative digital infrastructure and its supply of office, residential and logistics properties.
Most sought-after properties in the coming year will be logistics properties, data centers, and properties in the biotechnology and healthcare sectors, which respondents said are the winners in the ongoing drive to digitization, the pace of which is being accelerated by the corona crisis.
Respondents also confirmed the importance of ESG criteria for investment decisions is also growing in the search for long-term returns. "While environmental and sustainability aspects are already frequently taken into account in investment strategies, social aspects such as diversity and its economic benefits are increasingly coming to the fore," said Thomas Veith.
Stephanie Baden, Executive Director, ULI Germany/Austria/Switzerland, said: "Transparent measurement and evaluation criteria are important to emphasize the actual ESG impacts of sustainable investments. The core idea of sustainability and its long-term value-creating potential has been gathering more traction at the corporate philosophical level than than is immediately reflected at the property level".
Despite the tenor of caution which infused many of the respondents’ assessments, the survey still does reveal a significant degree of pent-up capital, with investors waiting for some resolution of 2020’s uncertainty. An emerging bias towards domestic markets is also evident, with investors renewing their focus on locations where they have local expertise, need less reliance on foreign experts, and can assess potential deals without undergoing extensive travel.
