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European Commercial – December 2021
S P OT L I G H T European Investment
Outlook 2022
Savills Research
2022 key words Secure Responsible Diverse
European Investment Outlook 2022
Economic horizon strewed with
pitfalls
During the third quarter of 2021, over the dynamism of the disruptions. But most imminently
GDP grew by 2.1% in the euro economy. According to Oxford and possibly damaging for the
area compared to the previous Economics, GDP is expected to economy is the rising number
quarter, unexpectedly slightly expand by 4.4% compared to 5.1% of new Covid cases, which have
above the previous quarter last year. forced some European authorities
(2.0%) on the back of particularly to impose some circulation
strong household consumption. Ripple effects of the supply restrictions. Although the late
The economy will remain solid chain shortages are spreading information on Omicron suggests
next year, still mainly thanks across all sectors. Furthermore, that illness may be less severe
to unleashed spending, and all as the level of global consumption than its previous variant, this new
European countries are expected is expected to remain high threatening wave suggests that we
to have returned to their pre- next year, supply shocks could are still under the grip of Covid.
pandemic GDP level. Nevertheless, be prolonged into 2022. Sharp The longer this thread will last, the
overall the economic growth increases in energy prices have more likely the sharp structural
is forecasted to ease in 2022 as fuelled new inflationary pressures, changes imposed by the pandemic
several headwinds are hanging notably under the impact of supply will become permanent.
2021: the recovery vs 2022: the
rebalance
European commercial and buildings to embrace social values. living sectors to remain highly
residential investment volumes This will eventually provide sought after in 2022. In all
reached approximately €78.9bn some opportunities for value-add European countries, the growth of
in Q3 2021, the highest level investors. Yet, we do not expect a online sales has accelerated during
recorded in a third quarter over significant return of the value-add the pandemic, inflicting a sharp
the past five years. This brought investors at least until 2023, after a rise in occupier demand. Living
the total volume accumulated significant repricing in secondary sectors, on the other hand, offer
since the beginning of the year to asset classes. Historically, we have stable income streams and are
€201.6bn. This is a 13.5% jump on seen value-add investors interest driven by rising urban populations,
last year and a 7.7% increase on rising in periods when the prime/ demographic changes and new
the past five-year average; some secondary office yields gap is above living arrangements. The common
standout figures given the current 90 pbs (in Q3 2021 it was 88 bps). ground of both sectors is clear
circumstances. Strong investment demand and supply imbalances
activity will continue until the It is still too early to determine pressing rental levels up and
end of the year; we anticipate the precisely the extent of the “Covid” forcing investors to look into
end-year volume to be around factor in the retail, logistics and forward-funding strategies. This
€288bn (+ 8.5 / 9.0% YoY). 2022 office markets. Either way, the will carry on into 2022; hence we
is likely to be pretty much in line Covid crisis will have served to anticipate solid rental growth for
with 2021; we expect the European highlight the metamorphosis of both sectors next year.
investment volume to range these markets, which was already
between €290bn and €295bn next in place long before the pandemic. 2022 could set the start of
year (+2% YoY). From an investors' point of view, a new beginning for the retail
the adage according to which no sectors following years of
“Flight to quality” will remain one should put all their eggs in one changes in consumption patterns,
the investors’ leitmotif, which basket will be more prevalent than retailers attempts to adapt
will start to heavily weigh on the ever. We expect greater portfolio through consolidation strategies,
non-prime stock. With greater ESG diversification in the years to implementation of omnichannel
imperatives ahead, it will be time come, in terms of assets, locations networks and repurposing of retail
to think about renovating some and strategies. units. We believe the sector is now
of this stock to achieve greener more aware and better prepared
standards or repurposing some We expect the logistics and to adjust to consumers' changing
savills.com/research 2European Investment Outlook 2022
Investment volumes - Strong performances given the circumstances
Q1 Q2 Q3 Q4 Forecast
350
300
250
Billion Euros
200
150
100
50
0
2015 2016 2017 2018 2019 2020 2021 2022
Source: Savills Research
Breakdown per asset class - Toward an even distribution?
Office Retail Industrial Multifamily Alternatives
45%
40%
35%
30% 46%
25%
20%
15%
10%
18%
5%
0%
2016 2017 2018 2019 2020 2021 Q3
Source: Savills Research
3European Investment Outlook 2022
behaviour. We expect rental secondary assets. variant. Nevertheless, we also
growth to turn positive following expect growing intraregional
several years of decline. Strong In core markets, student activities from investors,
retail repricing (+80 bps over the housing, senior living and care developers and operators. We
past four years on average across homes have become mainstream, anticipate Swedish investors to
Europe) has turned the sector although still niches by investment become the most active cross-
into one of the most competitive volume standards. Strong yield border investors in Europe.
of all. This is already starting to compression for these asset types
catch investors' attention, and we over the past five years has led Core countries (UK, Germany
expect this will start materialising to yield levels below 4%. In the and France) will remain the
next year through growing retail very low yield environment, the preferred investment destinations.
investment volumes. The best search for higher returns will push We notably expect investment
performing supermarkets and investors further afield within the activity to increase in France
retail warehouses will remain alternative segment. Hospitals, (+20%) and the UK (+10%),
the most sought after products, universities, data centres, life whilst it should remain stable
followed by convenience stores, sciences, and urban farming are in Germany. We also believe
commuting hubs and high street slowly emerging on investors' the Nordics’ share in the total
units in strong footfall areas. radars. We expect these sectors European volume could continue
will gradually emerge as an asset to increase as the region is
There are no doubt that offices class in the next five years. All increasingly attracting foreign
will remain commonplace to in all, we believe the investment capital. During the first three
work for the foreseeable future. breakdown per asset class, will be quarters of the year, the Nordics
Yet, it seems not every office will slowly merging toward a more even accounted for 21.8% of the total
continue to fit this purpose within distribution. European volume, up from a record
the new agile working framework level of 15.5% last year.
expected by employees. Given The amount of cross-border
the rising residential prices in capital invested in Europe during Over the past few years,
central locations in all European the first three quarters of the the number and the volume of
cities leading to lengthening year totalled €88bn, representing forward-funding deals have been
commuting times and the growing 49% of the total volume invested growing significantly, accounting
concerns over sustainable in Europe. This is 16% up on last for 7.5% of the total investment
mobility, office locations will year and in line with the previous volume in 2015 to 16.4% in 2021
further be paramount. Hence, five-year average for the same (to Q3). We expect forward-
based on the very low vacancy rate period. Gradually over the year, funding investment intentions
within European CBDs, notably cross-border investment activity will increase, mainly driven by
in core and Nordics countries, has been increasingly led by non- the living sectors and logistics.
we expect solid rental growth European investors, notably from However, the overall volume is
for prime CBD offices next year. the US, but also from Canada, likely to decrease slightly due
As such, we expect investors to Singapore, and the Middle East. to increasing concerns about
become increasingly selective We expect long-haul cross-border development delays caused by
seeking exclusively prime offices investment volumes to increase in major disruptions in supply chains,
in key locations. This will support 2022 unless travel restrictions are which are unlikely to ease anytime
growing rental values and pricing enforced due to rising concerns soon.
divergences between prime and over the spread of the Omicron
savills.com/research 4European Investment Outlook 2022
Another year of prime yield
hardening ahead
On average, the prime CBD office London (-25 bps) and Paris (-35 particularly true for care homes
yield hardened by 9 bps to 3.49% bps) continue to compress, whilst and student housing, two segments
over the past six months, driven by Lisbon (-75 bps), Milan (-50 bps), for which we anticipate significant
strong compression in core cities. Madrid (-50 bps) and Amsterdam activity in 2022, fuelled by mergers
Manchester, London City, and (-50 bps) observed the strongest & acquisitions (M&A) between
West End compressed by 25 bps, compression. For the next 12 care home operators and disposals
Berlin and Cologne hardened by 20 months, we expect prime yields of large student housing portfolios.
bps; Paris and Barcelona by 15 bps to harden further, by 10-15 bps on
and Dusseldorf and Hamburg by 10 average in Europe. Within the retail segment, retail
bps. Rising long-term government warehousing yields have converged
bond yields during Q2 and Q3 Growing investor interest further with prime shopping
2021 have not had any impact on has also put downward pressure centre yields. Average prime retail
record-low office pricing across on prime yields across the warehouse yields compressed by 4
the main markets, with long-term living sectors. During the past bps in the last two quarters to 5.2%
risk spreads remaining in line with six months, the average prime whilst at the same time the average
the long-term average. We believe European multifamily yield prime shopping centre moved out
there is still some gap for further compressed by 6 bps to 3.2%. The by 3bps to 5.3%. Average prime
yield inward movement for the average prime student housing high street yields are also edging
best CBD offices. We forecast an yield has moved in by 14 bps since upwards (+3 bps). We forecast
average annual compression of 3-5 Q1, standing at 4.1% in Q3 2021. prime retail warehouse yields to
bps by the end of 2022. During the same period, prime compress further by 5-10 bps on
senior housing and prime care average during the next 12 months,
The weight of capital targeting home yields hardened by 14 bps whilst shopping centre and high
European logistics has compressed and 17 bps respectively on average street yields are anticipated to
average prime yields by 28 bps across Europe. We expect further start stabilising during 2022 on the
over the last six months - the most yields compression across the back of renewed investor interest
significant yield compression of all living sectors in the next 12 months for retail.
sectors. Core markets, including (5-10 bps on average). This is most
Prime yields - Edging downwards
CBD offices Logistics Retail warehouses Shopping centres High street Multifamily
6.50%
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
15 Q3 16 Q3 17 Q3 18 Q3 19 Q3 20 Q3 21 Q3
Source: Savills Research
5Savills Commercial Research
We provide bespoke services for landowners, developers, occupiers and investors across the
lifecycle of residential, commercial or mixed-use projects. We add value by providing our clients
with research-backed advice and consultancy through our market-leading global research team.
Lydia Brissy Oliver Fraser-Looen Tristam Larder Leila Packett
Europe Research Director Joint Head of Regional Joint Head of Regional Associate Director Regional
+33 624 623 644 Investment Advisory EMEA Investment Advisory EMEA Investment Advisory EMEA
LBrissy@savills.fr +44 780 799 9582 +44 7870 999 673 +44 7966 711 414
OFLooen@savills.com TJLarder@savills.com LeilaPackett@savills.com
Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,
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