A pivotal economic year that will transform risk reassessment
2022 is shaping up to be a transformative year for real estate markets in Europe. It has been a tough few months in macroeconomic terms, with a slowing economy, high inflation and an elevated cost of debt. The age of abundance – cheap money, labour and energy – appears to be over. Meanwhile, monetary conditions are normalizing, leaving behind the ultra-loose rates that were a legacy of the great financial crises, with implications for real estate values. The near term promises : a price correction that will set a base camp for the next cycle.
Offices – The Big Divide Continues
The structural forces of macroeconomic change and energy transition have become accelerants of change in the office market. There is now a clear bifurcation between occupancy and investment activity levels in the office market. While the occupancy side has taken a year to regain pre-pandemic levels of activity, investment led the recovery and attained that by mid-2021. Those positions are now reversing, and the split between modern and old is widening rapidly on both sides.
Logistics – Pulling the Punch Bowl
The logistics sector seems unperturbed by Covid-19, the Russia-Ukraine war and inflation. On the contrary, the market performed strongly during the COVID period. It continues to perform robustly on the occupancy side, with e-commerce and reshoring currently among the most important drivers. The situation is somewhat different in the investment market. Although volumes remain healthy, the change in financial conditions, particularly the interest rate environment, is putting pressure on logistics prime yields.
Retail – Recovery Postponed
The retail sector was counting on 2022 as the year to recover from the hard blows delivered by the pandemic and lockdowns. However, as the invasion of Ukraine and rising inflation have come on top of the existing pandemic-induced turmoil, we expect that the retail investment market will keep realigning and repricing itself until 2023.
Residential – A Tale of Two Segments
Unlike house prices, which are coming under pressure from increasing mortgage rates, we expect rental values to increase at a faster pace as demand shifts to renting from buying. This should bode well for institutional build-to-rent investors in terms of both occupational demand and pricing. However, the sector faces regulatory challenges in most regions, which will only intensify on the back of the cost-of living crisis.