Despite a serious economic downturn combined with heightened global
anxiety triggered by the pandemic, the European property markets proved to be
relatively resilient in the face of crisis.
The property markets benefited from
the trend during the year, as commercial
properties were regarded as
assets with the capacity to generate yield in
periods of low or negative interest rates. In
addition, the lowering of long-term interest
forecasts entails lower future yields in the
short term, which leads to successful exit
strategies and higher valuations due to lower
discount rates.
Resilient property market
The anxiety triggered by Covid-19 brought
about a change in market preferences:
investors’ risk aversion rose, with a clear shift
towards increased quality and stability in
the form of core assets and public buildings.
This was particularly apparent in the office
market, where core properties with solid
tenants were sold at record prices. The trends
in remote working and office use over the last
year, however, suggest a relatively uncertain
office market ahead.
The increase in online shopping has had
strong growth impact on logistics properties,
which are recording higher capital inflows.
With few existing products in the market,
there is a wide demand gap that leaves room
for new project development. Competition
is fierce in the logistics property segment
and yield is at a historical low, which may
be a sign that all risk has not been priced in.
Investors are also indicating much higher
interest in the healthcare sector.
Retail has been showing a downward trend
for some time, caused in part by growth in
e-commerce. The pandemic and subsequent
lockdowns in many countries have accelerated
the crisis and the industry was hit by
several large bankruptcies during the year.
The hotel and restaurant sector has also been
hit hard by the pandemic and it is likely to be
some time before the business travel market
recovers.
The residential property market benefited from demand for stable interest income and the previously noted upturn persisted in 2020. There is substantial appetite for residential property of all types.
New players have entered the market with focus on more defensive risk avoidance strategies ascribed to the high level of uncertainty. Although the number of available objects was low, investment volume approached and
sometimes exceeded record levels in markets including France.
Sustainability takes on greater relevance
Interest in building sustainable cities and environments has not decreased due to the health crisis, and has instead grown among long-term institutional investors. ESG – Environmental, Social, Governance – is firmly established in the property industry and investors are increasingly imposing rigorous sustainability standards on property assets. Investment managers are using the international benchmarking tool GRESB to an increasing extent to evaluate the sustainability programmes of property companies, and there seems to be an expectation for companies to have signed the UN Principles
for Responsible Investment (UNPRI). Institutional investors consider environmental sustainability one of the most pressing issues for the future and are seeking advantageous investment opportunities with high sustainability value.