There has been a resurgence of interest in Europe’s property markets in the second quarter amid growing investor confidence in the region’s recovery prospects according to Colliers’ latest market snapshot for Europe, the Middle East and Africa (EMEA).
Office assets were the main focus in Q2 as investors bet on a shift back to more traditional working patterns as COVID measures are lifted. The quarter was notable for a return of the €500 million-plus ‘megadeals’ in the office sector in markets such as Germany and the UK including the sale of Highlight Towers in Munich for around €700 million and 30 Fenchurch Street in London for €741 million.
“A lot of transactions were delayed in Q1 by lockdowns,” said Richard Divall, Colliers’ director of Capital Markets. “With Europe now having vaccinated many of its most vulnerable people, restrictions are easing and we’re seeing investors coming back, with plenty of deals in the due diligence pipeline likely to close in the second half of the year.”
Offices were not the only segment seeing new momentum in the quarter. Despite the leisure sector remaining relatively subdued, investor interest in hotels – an asset class badly affected by the pandemic – is visibly picking up in tourism hotspots such as Italy and Spain, while there were also signs of life in retail.
“Investors are beginning to position themselves for a boom in post-pandemic tourism, counting on a surge of pent-up demand once COVID restrictions are fully lifted,” said Damian Harrington, Colliers’ Head of Global Capital Markets Research. “The recent pressure on hotels means those in prime locations are looking increasingly attractive.”
Interest in the private rental sector is also high in markets such as Poland and Ireland, even though some European cities and countries are tightening regulations in favour of owner-occupiers and tenants. The research also showed investment in the industrial and logistics sectors continued to build, in the expectation that the online delivery demand created by lockdowns is here to stay.
Big-money moves return to the UK
The UK saw a recovery of property investment in Q2, particularly towards the end of the quarter, with more than £4 billion (€4.6 billion) invested in June alone, compared to £5 billion for the entire second quarter of 2020. The four largest transactions were all offices, led by Brookfield Asset Management’s purchase of the Arlington portfolio for £714 million. Despite the recovery, the £11 billion invested in Q2 was still 20 per cent below the five-year quarterly average, illustrating the effect that COVID-19 has had on activity.
Germany sees megadeals
Investment in Q2 this year was stronger than in the pre-COVID ’boom‘ years, reaching volumes of €14.3 billion, led by the return of €500-million-plus ’megadeals‘, with two deals upwards of €1 billion. The quarter also saw the return of foreign investors to Germany, as well as more opportunistic, higher-risk investors who had been deterred by the pandemic.
France lags on last year due to supply constraints
The volume of investment in France was €8.1 billion in the first half of 2021, down 29 per cent compared to the first half of 2020. Q2 2021 saw a 35 per cent decline year-on-year, with €3.2 billion invested, with the fall particularly notable in the Greater Paris area. These results are not a reflection of a lack of investor interest, but rather a shortage of supply in investible properties, leaving many investors closely monitoring the market from the side-lines.
Investors eye hotels in Spain and Italy
Q2 saw a return of investment into the hotel sector, which has struggled over the past year due to COVID-related travel restrictions. In Italy, the tourist magnet of Venice logged one of the biggest deals, with the picturesque Bonvecchiati Hotel bought by ECE for €100 million. In Spain, hotels and logistics were the most popular sectors for investors, achieving in just six months more than the investment total for the whole of 2020.
