The war in Ukraine, inflation, and the rising interest rate cycle have led to a cooling off period in European real estate.
Savills, the listed property services company, gave the market its latest assessment ahead of its annual general meeting on Wednesday.
Though both its transactions and ‘less transactional’ businesses are performing in line with expectations, the company cautioned: ‘The war in Ukraine, inflation and the rising interest rate cycle have somewhat tempered transactional activity, particularly in the smaller lot sizes both in terms of capital transactions and leasing take-up with activity skewed towards larger transactions.’
Mark Ridley, CEO, explained: ‘2022 has presented a number of heightened macro-economic, geopolitical, supply chain and, in some locations, continued Covid-related risks both to investors and corporates and to people's personal lives.’
Nevertheless, he went on to say the company had performed well.
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Savills is finding there remains significant investor interest in the secure income characteristics of real estate and occupiers are ‘progressively focussing’ on improving the sustainability characteristics of their portfolios as well as creating workplace environments that staff could ‘thrive’ at.
In Continental Europe and the Middle East, where Savills is more dependent upon transactional activity, performance has improved compared with both the prior period and its original expectations for the year to date. However, it remains ‘conscious’ that supply chain issues, inflation and the rising interest rate environment pose a challenge to a number of European economies.
In the UK, the firm has performed strongly, driven primarily by the continued high levels of activity in the transactional markets, albeit residential activity has been ‘somewhat lower’ than the unusually strong 2021.
Recovery in the Asia Pacific region has been most evident in Singapore, Australia, Japan and Vietnam. Greater China, although below its original expectations, had performed 'resiliently' in the face of continued significant Covid-related restrictions.
