European investment deals will plummet by 50% before rebounding sharply within the next 12 months, due to the effects of Covid-19, says Savills.
The broker’s EMEA commercial research head Mat Oakley predicted that neither the speed nor the depth of the crash in transactions in the next 6-12 months would be as bad as the global financial crisis - when volumes plunged by 72% over 2008-2009.
‘Investment is very sentiment-driven and as soon as countries are perceived as being on an upward path investor confidence will return into the sectors that they were optimistic about before,’ he suggested. Hits to prices would also be short-term, he believed.
‘I don’t think the demand for investments has changed that much although the practicalities of doing deals are problematic at the moment’, he continued. ‘The weight of money targeted at real estate was strong and remains so. Initially we’ll see less cross-border activity than we were expecting, as it has become difficult to travel.’
However, recovery from the recession universally forecast for European countries would not be similarly v-shaped. This meant the occupational markets would be slower to recover. ‘The simple fact of life is all European countries are going into recession and property markets will behave in a very normal recessionary way. Tenant demand will dry up, vacancy rates will rise and rents will fall.
‘Some businesses will take the view this is a short-term shock and will plan through it; others may not...and there could be double-dip in the occupational market.’
Oakley said he was sceptical there would be ‘dramatic’ changes in behaviour in relation to office working, shopping or socialising as a lasting result of the coronavirus crisis although he said it was natural to speculate about things such as a longer-lasting rise in home-working.
The firm was launching its latest ‘Impacts’ research about global property markets which considers tipping points that will cause significant future change. Simon Hope, global head of capital markets, said the pandemic is accelerating some structural trends which had been developing for years, including changes in global distribution networks.
While the ongoing trade conflict between the US and China will be overshadowed by the impact of the Covid-19 pandemic this year, it has already accelerated shifts in global trade patterns, the firm said.
As Chinese manufacturing has relocated, other nations have benefited. These include Vietnam, where manufacturing exports to the US rose by almost 36% in 2019 making it the US’s fastest growing trade partner last year, and India, Malaysia, Thailand and South Korea.
India has also seen an uptick in light industrial occupation, notably in the automobile sector, with Blackstone and Brookfield among several investors who have already deployed large amounts of capital in its real estate market.
Beyond Asia Pac, Savills said that European countries, notably Austria, Belgium, France and the Netherlands also increased their proportion of trade last year, signalling possible strengthening opportunities for real estate investors in these locations in certain sectors.
Paul Tostevin, co-lead of ‘Impacts’, singled out life sciences as an emerging investment sub-sector which had attracted over $2.5 tn of venture capital globally in five years, a figure that would only increase with the search for a covid vaccine.
He said a number of countries were seeing fast growth in this sector, if off lower bases, with Spain and Austria representing potential investment opportunities.
