For our February issue, property investment experts shared their views on how the coronavirus pandemic has impacted the real estate market, and how it accelerated trends.
JASON ORAM, PARTNER, FUND MANAGER, EUROPA CAPITAL
It is stating the obvious, but the pandemic has had a negative impact on real estate investment in Europe, with volumes for the year projected to be around 15-20% lower than in 2019, but still similar to 2016. This is only a superficial impact on the market and masks what are more profound changes.
The cause of the reduction in real estate investment in Europe is not simply due to the restrictions in mobility that frustrate capital movements in what is now an increasingly internationalised industry, but may be more substantially attributed to the undermining of capital market confidence in occupier markets and not just in the short term, but more importantly into the long term.
Although important, this isn’t just about confidence in occupier covenant strength as a result of the financial strain of the pandemic, but rather it is to do with the manner in which the pandemic is revolutionising the way in which we occupy real estate.
Trends that were evident pre-pandemic are being accelerated both for good and bad. This might be most evident in the trauma being experienced in the retail sector and the contrasting exuberance of the industrial sector, but it also applies to the future use of offices and even the homes within which we live, indeed the entire built environment is being rethought.
As occupiers, we are social beings, and ultimately, successful real estate has always been about creating social environments. Urban areas have been capable of demonstrating the best qualities of a social environment and must strive to continue to do so and meet our changing needs.
AXEL DRWENSKI, HEAD OF RESEARCH, KGAL
In the current market cycle, the majority of investors are seeking out opportunities which are low-risk and provide greater stability. As a result, we have found that the appetite for residential and logistic assets in core European markets are high, whereas the demand for sectors affected by the measures to contain coronavirus remain very limited – for example, hotels and shopping centres.
The previous downturns have taught us that the moment for contra-cyclical investments will soon return, and subsequently, we are anticipating a comeback of business hotels and selected core retail locations.
Acceleration of trends: We have witnessed a strong shift of the demand from value-added and opportunistic investments to less risky ones. However, the pandemic should not have an impact for the long term. Apart from the downturn in the hotel sector, the development we have seen in 2020 (the increase in online trade, remote working, and the shift of the housing demand from the cities to the city fringes), is just the acceleration of trends investors should have already anticipated in their pre-Covid investment strategies. Furthermore, if you are looking for a stable cash flow, the last year has shown how important the diversification by sectors and countries is.
Cities worth watching: I would keep an eye out for London and Belfast. After years of uncertainty, there are many opportunities in London; and because of the special status of Northern Ireland, the region might become an attractive link between the European Union and the UK.
Read more insights into global real estate here: Global real estate: Beds, sheds and meds
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