2022 is likely to be the last year of double-digit returns in most markets in the logistics sector, advisor BNPPRE warned on Friday.
‘Logistics has had a good run and investors should now take a strategic approach,’ BNPPRE said, adding that ‘with yields this low, investors need to be cautious of the long-term value trap’.
‘For income-driven investors, good future rental growth provides comfort, but for value investors lower exit yields could be hard to find,’ it noted.
In its quarterly outlook for European real estate markets, which remains positive, BNPPRE said that the apparent end to the pandemic and consequent lifting of the many restrictions has paved the way for business to start normalising.
Real estate investment in 2021 was solid at €272.7 bn (up 14% on 2020) and the advisor expects a further increase of 7.5% in 2022. This would take investment to its 2019 level, signalling a full recovery in activity.
However, investors’ sector preferences are shifting alongside changes in occupier behaviour. Demand for Logistics and Residential assets have increased significantly at the expense of the traditional Office and Retail sectors.
‘Our forecast shows a strong performance for European real estate over the medium term. However, we are mindful of the increased geopolitical uncertainty as we write. Although this presents a downside risk to our forecast, property assets will remain sought after and highly priced amidst rising inflation and low real interest rates,’ explained Samuel Duah, head of Real Estate Economics at BNP Paribas Real Estate.
After the storm comes calm
The UK is in advance of continental Europe in its peak-to-trough journey and is therefore likely to recover earlier. Within the sector, retail warehouse stands out for resilience, but good core high street locations that could benefit from strong spending from pent-up Covid-19 savings should not be ignored. Returns will remain low single-digit (5.0% per annum).
The European office market is on its way to recovery in terms of both occupancy and investment. There is likely to be some permanent reduction in workspace, but this should be limited. In addition, changes in work patterns and the regulatory environment mean performance will lean in favour of Core and ESG-compliant assets.
