'Sheds, beds, meds' and other alternative market sectors will dominate the EMEA investment agenda this year, as investors remain risk averse, according to new research from Cushman & Wakefield.
The economic impact of Covid-19 continues to see funds focus on core opportunities with better long-term growth prospects, while alternatives such as data centres and self-storage are expected to continue a trajectory of strong growth.
However, logistics, residential and life sciences continue to display the most compelling fundamentals, following lifestyle shifts caused by the pandemic, which changed working, living and shopping patterns.
Repurposing existing assets is also a major area of opportunity, including mixed-use and specific sector prospects such as supporting click and collect and 'last metre' inner urban logistics and evolving areas of tech infrastructure.
David Hutchings, head of investment strategy, EMEA capital markets at Cushman & Wakefield said: 'Investment activity across EMEA markets closely rests on wider economic recovery and easing of Covid-19 restrictions, which continues to dictate investor appetite and the performance of specific sectors.
'Asia and North America will lead the global economic upturn, but European growth is also set to accelerate later in the year. Nonetheless, amidst ongoing structural changes in how we use offices and shops in particular, it will be logistics and alternatives such as residential to rent, health and life sciences which will retain their title as pandemic ‘winners’ this year.'
Office and retail transformation
Office and retail activity is expected to pick up in H2 2021 once vaccination rates have increased and Covid-19 restrictions are eased. Assets in these sectors will be impacted by quality of location and sense of destination, influencing tenant demand and ultimately pricing.
EMEA is expected to maintain the lowest office vacancy rate throughout 2021, with a modest and steady increase reaching just shy of 10% by Q4 2021, largely due to long lease lengths commitments and a restricted development pipeline. Vacancy rates in North America and APAC & Greater China, are expected to reach in between 15-20% by the final quarter of the year.
Hutchings said: 'Office and retail should not be overlooked, especially as office workers return to the workplace and non-essential retail opens back up over Q2 and Q3. The pandemic has undoubtedly brought quality of location and wider placemaking to the forefront and these factors will be critical to meeting occupier demand.
'Instead of looking at these sectors in isolation, investors may find success in taking a more holistic approach and exploring the potential for mixed-use, again helping to create a destination and sense of place.'
Slow leasing recovery
The research also signalled a slower leasing market recovery in EMEA office markets, due to the effects of the pandemic. Analysis of the impact of Covid-19 on real GDP levels shows European nations amongst the slowest to recover.
Within a global ranking of the 20 largest economies, the UK, France and Spain can expect the longest recovery times, from 2022 Q4 for the UK to 2023 Q4 for Spain. This is significantly longer than Mainland China, Taiwan and Australia at the top of the ranking, whose GDPs surpassed pre-Covid levels back in the middle of 2020.
The report concludes that European investor demand continues to be largely focused on core countries, but the rapid economic bounce back forecast in areas such as Poland will encourage more to shift their focus and explore new opportunities.
