Overview on Savills European Investment Outlook, Trends and Projections

European investment activity remained surprisingly high, over €70.6bn, in Q1 2020 boosted by large-scale deals already under negotiation before the lockdown measures in March. Portfolio deals accounted for 40% of the total transaction volume, almost three times higher than in Q1 2019. In Finland, the share of portfolio deals was 58% of €2.6bn, the highest transaction volume of the first quarter ever. Offices captured the highest share of European investment activity at 33%, driven by some mega deals such as the acquisition of OP Financial Group headquarters in Helsinki by a South Korean-Finnish investment consortium for €480m. Alternative, multi-family and retail accounted for a total of more than half of European Q1 investment volume. One of the mega retail sector transactions was the sale of 50% share of the Sonae Sierra and APG Iberian shopping center portfolio of 6 properties to Allianz and Elo for €525m. Q1 2020 was a particularly active quarter for international investors as cross border investment accounted for 61% on average, in Finland as much as 69%. Nordics driven by Sweden and Finland had a strong first quarter along with Iberia and CEE. In terms of investments in cities, London was the largest market, followed by Paris, Berlin, Stockholm, and Helsinki.

COVID-19 pandemic continues to cause disruption

The eurozone economy is forecast to shrink by 4 to 13 percent this year. Even if several European economies are beginning to lift lockdown restrictions uncertainty prevails and the recovery will be a slow process. If the pandemic and its containment measures are prolonged and the finance needs of companies are not met, the corporate sector could face a wave of bankruptcies and unemployment could rise a lot. The risk of business failures is elevated after the government support for companies ends. According to Savills’ research, travel ban and negative sentiment have blocked investment activity in Europe with only a few property transactions progressing. Small price adjustments (5-10%) have already been observed, while in other instances deals have been put on hold or fallen through. Office rent payments were close to 80% across Europe, logistics at about 76% on average and retail below 50% in most countries. Prime logistics yields have dropped below prime shopping center yields for the first time.

Survival and outlook of property sectors

The corona crisis has accelerated the structural changes that were already underway. Increased online retail supports leasing demand for logistics space and investment in logistics properties while for retail this means further retail store rationalization and downward pressure on rents. Investors are expected to refrain the sectors hardest hit by the lockdown such as retail and hospitality until there is more clarity about the implications of the crisis. In addition to logistics, the most resilient properties are considered residential and public sector properties. There is also reliance on the prime offices, and certain retail segments such as convenience retailing. The trend to reduce the office footprint will continue to give way to flexible office space offering the benefit of short-term leases and access to multiple locations.

Please, open the link to see more in detail information: Spotlight European Investment – May 2020