Best bets for real estate investment and development across Europe in 2022


Answers are to be found in the 19th ‘Emerging Trends in Real Estate 2022’ report - a joint undertaking of PwC and ULI Europe-. The report gives the heads-up on where to invest, what to develop, which markets and sectors offer the best prospects. Results of the survey and interviews reveals a significant leap in confidence among European real estate sector leaders in the year ahead; the highest level of business confidence since 2014 and a doubling in positive outlook compared with the same time last year. Short-term optimism reflects the broad sense of relief that the industry remained resilient during the pandemic and that real estate remains a favoured asset class. Around half of respondents think that business confidence (52%), profitability (49%) and headcount (53%) will rise in 2022, and 59% of the interviewed expect to be net buyers of real estate assets.

For many this means the performance of real estate looks relatively strong for 2022 with higher forecast returns than a year ago. This level of confidence is further supported by continuing strong investor demand. The availability of debt and equity is expected to be plentiful albeit with significant differences between sectors, depending on which performed well during the pandemic and those that suffered significantly. In the longer-term outlook is characterised by uncertainty with the radical changes brought about, or accelerated, by the COVID-19 pandemic. Profound changes are expected as a result of changing consumer demands, digitalisation and an increasing focus on the ESG agenda (Environment /Social/Governement).

The report is based on personal interviews all over Europe with and surveys conducted this year between July and September, from 844 of the most influential leaders in the real estate industry (investors, fund managers, developers, property companies, lenders, brokers and consultants).

Cities favoured by Investors and developers for 2022

London comes top overall for investment and development prospects for 2022 in European city rankings, benefiting from the depth of its market, undoubted gateway status and yield gap in the office sector roughly 1% greater compared to the continent. Berlin, in second place, shares the robust economy and transparency of the other German cities in the top 10, while having its own distinct appeal, particularly for international investors. Like last year, Paris ranks third, reflecting its gateway status. Brussels has entered the top 10 of most interesting cities in terms of real estate prospects in Europe, up from 12th place in 202. Luxembourg remains at its 17th position in this ranking.

Grégory Jurion, Partner and Real Estate leader at PwC Belgium comments: “The move of Brussels was helped by its location at the heart of Europe, a resilient stock and yields which even increased during the COVID-19 pandemic for core assets. Brussels is also often perceived as having a young and innovative profile. On the other hand, there is some concern among investors about excess office capacity in the city, as many big corporates are reducing their footprint, and following the European Commission’s announcement in May that it plans to close half its 50 office buildings across Brussels by 2030.”

Top 2022 ranking, versus 2021

1 London 2
2 Berlin 1
3 Paris 3
4 Frankfurt 4
5 Munich 7
6 Madrid 8
7 Amsterdam 5
8 Hamburg 6
9 Barcelona 13
10 Brussels 12
11 Milan 9
12 Vienna 10
13 Dublin 11
14 Zurich 20
15 Warsaw 14
16 Lisbon 15
17 Luxembourg 17<br> 18 Copenhagen 18
19 Stockholm 16
20 Manchester 22

Real estate segments favoured in 2022

The pandemic has reinforced the trend of investors targeting sectors that profit from megatrends, operate anti-cyclically, and continue to generate resilient income. From a traditional sector perspective, this favours logistics and most forms of housing, although investors are aware that housing remains politically sensitive. However, it is the niche sectors that have dominated the top end of the list even though they are currently a small part of the market. New energy infrastructure topped the sector rankings followed by life sciences with data centres also garnering enthusiasm among investors.

Sector overal rank

1 New energy infrastructure
2 Life sciences
3 Logistics facilities
4 Data centres
5 Healthcare
6 Retirements/assisted living
7 Industrial/warehouse
8 Adfordable housing
9 Self-storage facilities
10 Private rented residential

At the same time, there is no consensus yet on the future of offices, with some respondents enthusiastic about the future of flexible, prime assets, while others envisage an inevitable contraction in overall demand. There will be a lasting increase in time worked remotely, according to 85%, while 82% see a continuing role for HQ buildings in conveying culture and attracting talent and 74% see a growing valuation gap between primary and secondary offices.

The sector rankings clearly signal a longer-term and fundamental shift into more operational real estate that the industry is navigating while making the most of the immediate economic upturn. At the same time, it demonstrates a more granular approach to real estate investing, drilling down into the specifics of subsectors when making asset allocation decisions.

Geoffroy Jonckheere, Partner at PwC Belgium, comments the fundamental changes brought about, or accelerated, by the COVID-19 pandemic impacting real estate investments and developments: “Having hopefully seen the worst of the pandemic, real estate businesses are looking forward with confidence. A major part of the recovery and future shape of the industry in Europe will be driven by the response to Net Zero and the ESG agenda more broadly. The challenges here are every bit as large as those associated with finding the post pandemic new normal. There is a great opportunity here for the industry to play a major role in finding new sustainable ways for how people live, work and interact with the built environment.

Further than telling what to expect and where the best opportunities are, the report elaborates on trends in the capital markets, including sources and flows of equity and debt capital. It shows on how the economy and concerns about credit issues are affecting real estate. It also describes the impact of social and political trends on real estate.

Read more in PwC comprehensive [ Emerging Trends in Real Estate Europe 2022] >>