Covid-19: impact on European investment market

INVESTMENT
Tim Harrup

Colliers International begins its overview of the European investment market at the beginning of this year by saying that the first quarter of 2021 saw momentum continue in the Industrial & Logistics and Living sectors however, there was a pause to large scale office transactions which led to many countries seeing investment volumes drop by half in comparison to Q1 2020. Investment into direct European Real Estate reached €51bn, a 35% fall on the first quarter 2020.However, it is worth noting that the first quarter of 2020 was the second highest first quarter figure posted in the last 10 years, and the figure masks a range in performance across countries.

Due to the third wave of the Covid pandemic in Europe many tender processes have been delayed however, there is activity in ‘off market’ and small tender processes. Despite the absence of large scale office transactions in the first quarter, sentiment remains positive for low risk, core assets in prime locations and we expect several large scale assets to be marketed in the second quarter of 2021 and when the return of international travel permits, volumes to pick up.

The Industrial and Logistics sector continues to thrive with falling yields in almost all markets and premiums being paid for portfolios. Investors are willing to go up the risk curve in this sector although some investors are showing some initial concerns to pricing and whether developers will push rents far enough in a falling yield cap rate environment.

The living sector continues to have high demand in the Nordics, as well as in Italy and CEE as an emerging asset class. Positive sentiment is also returning to the UK Student Housing market. There continues to be significant interest in the alternative sectors including life sciences, senior living and assets backed by technology sub sectors. The hospitality sector is seeing more interest with several markets reporting transactions for the first time since the pandemic started. Several core and forward hotel deals have entered the market and great there is anticipation in terms of new pricing.