Real Estate for a changing world

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European Property Market Outlook - H2 2021

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At the foothills of a new cycle

Challenges and opportunities in a new cycle 

The biggest fall in economic activity for a century has left the European real estate market standing at the foothills of a renewed upward cycle. A reflation of the economy will bring positive implications for rental outlook across the sectors. However, in this new age of economic revival and ongoing societal changes, the new real estate cycle will be different. Investor preference within the asset class is pivoting towards the living and logistics sectors. In the Office segment, changes in regulations and working behaviour means modern and prime properties are preferred to non-prime; and the position of retail in all these changes remains influx. 

 

The Future of the offices 

It is difficult to predict the impact that flexible working practices will have on future office demand, but we are likely to see a fall in average floorplates required. Moreover, the evolution of the workplace is con current with the ESG revolution. This will be key driver for the long-term value of offices. With a myriad of approaches being adopted for the post-pandemic workplace, incorporating all aspects of ESG will be a challenge. This will further drive a wedge between demand (both occupier and investor) for prime and non-prime assets, with implications for widening the rental values and yields in the office segments. 

 

A Logistics sector on the march 

The pandemic has highlighted and reinforced the existing strengths and weaknesses of the sector, with numerous border closures exposing the vulnerabilities on a global supply chain. The implications is an increased desire for a return to a more nationally or regionally oriented production (“reshoring”). This is increasing demand for industrial space. Moreover, e-commerce, which is still gaining momentum, remains the main driver for logistics. All this is reflected in an increasing shortage of space, rising rents and investor interest in the sector. 

 

Retail: Nearing the bottom 

Despite the acute challenges faced by the retail sector over the pandemic, there are reasons to be cautiously optimistic. Lockdowns have been synonymous with consumers shopping locally. With a large part of the population expected to continue working from home, this trend could endure with resultant permanent boost to local retail. In the wider retail sector, the situation remains fragile, however as restrictions begin to be eased the sector can begin to focus on adapting to the post-COVID world. 

 

A deeper private rental market 

Lockdowns, health restrictions and homeworking have completely changed housing demand. Despite the continued urbanisation across Europe, demand for housing is strongest in the outskirts of large and medium cities offering improved amenities. Driven by the desire for a more modern and larger dwelling, with dedicated space for homeworking and shared spaces. These developments speak to further growth in the Build to Rent (BTR) sector over the coming year.


 

European Property Market Outlook - H2 2021
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