Despite the imposition of further travel restrictions in Q1 2021, increased allocations to real estate in order to capitalise upon appealing yield spreads over sovereign bonds, as well as a growing trend for partnerships between non-European capital and European based investment managers, are both likely to positively impact cross border investment into Europe in 2021, according to Savills.
The international real estate advisor predicts that, although we will continue to see European money focusing on opportunities close to home, there is also the expectation that non-European capital will build upon transaction volumes recorded last year, with European cross border investment forecast set to see an uptick in activity of 10-15% year-on-year to circa €120bn.
Mike Barnes, European research, Savills, commented: “Although travel restrictions will continue to impact activity in the first half of the year, we expect that, with more non-European investors looking to form joint ventures with European based investment managers, we may see greater market momentum as a result.”
“We anticipate non-European investors will continue to seek to diversify their portfolios within Europe, particularly since sovereign bonds offer near zero returns, resulting in an enticing yield spread for real estate. The attraction of European markets is further underpinned by its relative macro stability. Political tension, oil price volatility and a desire for geographical diversification continue to be push factors bolstering outflows towards Europe.”
James Burke, Regional Investment Advisory, EMEA, Savills, added:
“2020 saw ‘beds and sheds’ take an ever-increasing share of investment from cross border players thanks to the strong drive towards ecommerce and the continued long-term fundamentals of operational residential assets. As we move through the next 12 months, we predict cross border capital will continue to make its presence known across all sectors from more traditional areas of interest, like offices and logistics, to topical sectors such as life science, healthcare orientated real estate and data centres, with some more opportunistic players looking to capture potential value in areas that have been more challenged such as retail and hospitality”.
Cross border investor intentions in 2021:
• South Korea
Korean sovereign funds are less likely to be impeded by the inability to travel on account of their operational presence in Europe and established partnerships with local asset managers. Despite such hurdles, we envisage a continued interest in core European product. Logistics real estate with robust tenant covenants will remain popular in spite of compressing yield levels.
• Singapore
2020 saw Singaporeans undertake a number of headline transactions in the core central London office space. This complements a continued interest in suburban business park offices where higher yielding opportunities in both the UK and continental European markets can be found. 2021 will see Singaporean investors further reinforce their established presence in thematic strategies across Beds, Sheds and Meds, with data centres and life science orientated real estate highly sought-after in spite of limited supply.
• China
Government capital controls remain in place for Chinese buyers, although opportunities will arise for One Belt One Road (OBOR) led infrastructure schemes in Central Eastern Europe, with logistics a notable inclusion in this broad definition. Nascent interest for life sciences is testament to the ambitions of private Chinese investors in Europe.
• North America
Recent robust activity from North American capital in Europe will persist into 2021 with focus anticipated to fall on large platform plays, in particular across residential and logistics sectors. However, we also expect US and Canadian investors to be omnipresent across more traditional sectors, with opportunistic acquisitions in offices, retail and hospitality likely as well-capitalised funds look to exploit narrow windows of opportunity.
• Middle East
Investors will continue to seek attractive cash on cash returns and, whilst yields for stable, core assets appear sharp, Middle Eastern buyers will remain active in the regional cities of core European markets like Germany, Netherlands and the UK. Whilst this capital has traditionally favoured offices and logistics, we are seeing growing interest in some sectors of retail, in particular food, as well as student accommodation and life sciences.
• Europe
Investors reasserted their competitiveness in core product in 2020 and we anticipate a similar dominance in 2021 in Europe. INREV's Investment Intentions Survey for 2021 indicates a rising target allocation to real estate from 9.0% to 9.3% within Europe this year, as European investors with strong net inflows into their funds look to deploy capital across various asset classes