Investment
Real estate investment declines in Europe in 1st quarter
Mobility restrictions or quarantine impositions have been the main factors that contributed to this behavior. 40% of the invested capital came from the USA.
06/09/2021
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The volume of real estate investment made in Europe fell in the first three months of the year, as a result of the pandemic, totaling 52.7 billion euros, 42% less compared to the same period in 2020, and 18% less compared to the average of the last 5 years, despite the volume invested having been historically high in the first quarter of last year.

This is shown by a recent study by the consultant Savills, which covered 19 European markets, and which shows that the impossibility of visiting assets, due to restrictions on circulation or quarantine impositions, was one of the main causes of this fall.

The report shows that Germany registered the highest level of investment capture, representing 30% of the total, despite a 47% decrease in the volume invested. It is followed by the United Kingdom, with 25% of the total and a decrease of 34% compared to 2020.

The fall was more strongly felt in smaller markets dependent on foreign capital, such as Portugal, with declines of over 80% compared to the same quarter of 2020.

In these three months, the USA was the main source of real estate investment capital in Europe, representing 40% of the total invested in the Old Continent. Investment from outside Europe amounted to 57%, just 2% less than in 2020.

Increases interest in alternatives

In this quarter, investors refocused their focus on alternative segments, such as residential, which includes the multifamily or student and senior residences.

The multifamily captured 20% of the total invested in the first quarter, above the 13% average for the last 5 years. In Spain and Ireland alone, it represented 50% of the total invested. In Portugal, the market is still incipient, but the scarcity of supply confirms the opportunity for investors, who are increasingly interested.

Savills even believes that the residential market «moves towards leasing and turns its back on buying», in an establishment of «a new pattern of consumption», mainly in the younger layers of the population.

For the first time since 2015, investment in the office segment dropped from 35% of the total to 27%. Retail also rose to 9%, being, for the first time, below 10% of representation.

But, on the contrary, logistics now represent 44% of the total invested, as a result of the growth of e-commerce during periods of confinement. Savills predicts that by 2025, an additional 1.7 million square meters of additional storage space will be needed due to the growth of e-commerce.

Office investment down 80% in Portugal

In Portugal, real estate investment made in the office segment fell by more than 80% in the first quarter compared to 2020, a decrease of 70% compared to the average of the last 5 years.

Lisbon tops the list of prime CBD office rental markets with the best performance in Europe, recording an 8.7% increase in the value of rents in this segment in the first quarter.

In Portugal, it is also worth noting the maintenance of the prime yields of supermarkets at 5.5% due to their resilience, or a contraction in yields in the residential market (multifamily, residences).

Nuno Esteves, Investment Development Associate at Savills Portugal, comments that “the year started with a 1st quarter of moderate dynamics. Even with restrictions on mobility in an international context, investors continue to identify Portugal as a desirable destination in their investment intentions and with a very transversal applicability, considering the diversity of investors' risk profiles and the available asset classes. If we combine the lifting of mobility restrictions with the advancement of the vaccination plan to this appetite, we will certainly see an intensification of investment activity in commercial property».

On the other hand, «particularly in the alternative sector, such as senior living and multifamily, we have observed the arrival of new investors with evolved concepts and who bring know-how from their operations in other locations, finding in Portugal an avid market for these products, although the lack of specific legislation, as well as comparable ones. We anticipate that the entry of these investors will also lead to potential Joint-Ventures with local entities, which can add value through their knowledge of the dynamics of processes inherent to each asset, providing greater comfort to the international investor».

Source: Iberian Property