The full impact of the Covid-19 pandemic was felt more deeply in global real estate markets in the second quarter of 2020 than the previous quarter, contributing to investment volumes declining across all three regions in the first half of the year, according to new research from JLL.
The report reveals that global first half investment volumes declined by 29% year-on-year to $321 bn (€273 bn), with second quarter activity down by 55% year-on-year, accelerating from a 5% drop in the first quarter.
In the EMEA region, investment volume declines accelerated throughout Q2 2020, falling to US $45 billion, a 35% decline.
EMEA performance
However, over the first half of the year, EMEA pulled back just 13%, comparing favourable to other zones - with investment in the Americas seeing the biggest half-yearly decline, down 37% on H1 2019, and Asia Pacific seeing first-half activity drop 32% year-on-year.
According to JLL, EMEA's measured performance was largely due to a spill-over of pre-Covid deals and continued activity in Germany.
'With cross-border investment significantly impacted by travel restrictions, those markets that are more reliant on foreign capital - such as London – are feeling the effects, resulting in more volatile activity in the short-term,' said Sean Coghlan, head of research, global capital markets, JLL.
'However, as institutional investors take a step back to assess risk, pockets of capital are emerging, with private local investors and high-net-worth family offices from the Middle East, Hong Kong, Singapore and the US emerging as new sources of liquidity,' Coghlan added.
German superiority
Germany outperformed the EMEA region as a whole, with investment volumes dropping a mere 1% (in USD) to US$30 bn during H1 2020, while H1 investment activity in France and the United Kingdom shrunk by 7% and 36% respectively.
Other characteristics of the EMEA transactions market were a boost for demographic and demand-driven sectors – multifamily, seniors housing and industrial – which held relatively steady for the first half of the year.
The JLL study found that there is growing diversification in the lending markets, with German and French banks and global insurance companies driving liquidity. Additionally, newly formed debt funds and private equity firms are increasingly entering the marketplace.
Global markers
In line with broader equity markets, REITs suffered in the first part of the year with total returns across eight major global REIT indices hitting their low point in March, declining 39% on average.
In successive months, all REIT markets tended to recover some of their losses, but have stayed firmly in negative territory with total returns averaging a decline of 24% as of the end of Q2.
On the other hand, markets with deep domestic capital and transparency have proved most resilient, led by Japan, Germany and South Korea. Japan saw 7% investment growth through the front-half of 2020, while Germany dropped a mere 1%. Despite sliding 15%, South Korea outperformed its long-run, first-half average.
'As transactional activity begins to recover, these dynamics will continue to benefit more markets in leading the real estate capital markets out of the market correction. Early signs are beginning to emerge in parts of the US and France,' noted Coghlan.
The report concludes that activity in the US and Europe will continue to be subdued in the coming months, but that investor sentiment is beginning to shift toward deal sourcing, and transactional pipelines are beginning to rebuild.
'In line with current dynamics in Asia, a rising focus on joint ventures, funds and platform investments could be replicated in the Americas and EMEA as business activity gradually improves,' concluded Coghlan.
