Global cross-border investment into European real estate will reach record levels in 2022 according to research from Knight Frank.
Based on its Active Capital research, Knight Frank expects that Europe will capture close to 60% of global cross-border real estate capital investment in 2022 with over half (51%) of inbound investment expected to flow into the office sector, followed by the residential (15%), logistics (13%) and retail sectors (13%).
North American investors are expected to be a major driver and provider of capital accounting for just under half (48%) of inbound investment in 2022, with US private equity capital making up one third (33%) of US inbound flows.
All sectors across Europe are set to see increased cross-border investor interest, with the office sector potentially attracting more than half of inbound capital, followed by the residential sectors, logistics and retail. UK offices are expected to be the number one sector of interest globally over the coming year, followed by Germany, France and the Netherlands.
The European logistics sector will see another record year for cross-border capital flows, with close to two thirds (65%) of inbound capital coming from the US. The year will also see a continuation of ‘near-neighbour’ investing within Europe with capital forecast to flow out of UK and German investment managers in addition to French and German institutions. The top target destinations for capital will include UK, Germany France, Netherlands, Spain and Poland.
Knight Frank also predicts that green buildings will continue to attract more investment in 2022, driven by the search for income and yield. In its Active Capital Research Knight Frank identified a 3-5% rental premium for mid BREEAM1 rated prime central London office buildings rising to over 12% premium for the best rated buildings, compared to the equivalent unrated building. The sales premium for mid rated BREEAM building lies at 10-11% compared to the equivalent unrated building. Green rated buildings may offer a lower risk premium due to reduced stranded asset risk and enhanced liquidity in addition to offering investors the best returns.
Mike Bowden, partner and co-head of European Capital Markets at Knight Frank said: ‘Nearly two years on from the start of the pandemic in Europe and transaction volumes have almost rebounded back to pre-Covid levels. We expect this to continue and predict that 2022 will be a record year for real estate investment into Europe. A big factor behind this is the increased capital flows from the US and Canada.’
