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European Investment – May 2021
S P OT L I G H T
Savills Research
European Investment
Photo by Chris Montgomery on Unsplash
European investment Market fundamentals Outlook
European Investment
The overarching theme in investor preferences is flight to quality.
Prime, core assets across sectors will continue to attract multiple bids,
and competition will lead to some further yield hardening.
Investors focus on quality
Despite the abundance of capital targeting real estate, first quarter activity was
restricted by the ongoing COVID-19 measures
The pandemic keeps activity levels experienced the steepest falls (over 80%). In The share of office investment in Q1 dropped
low Ireland (107%) and Denmark (21%), market for the first time since Q1 2015 to 27% of the
Investment activity in the first quarter of activity was higher than last year, driven total investment activity, compared to its
2021 has slowed down considerably compared by high activity in the residential market five-year average of 35% (Q1). Similarly, retail
to the same quarter last year. This is not segments. share dropped for the first time below 10%
surprising as most countries were still under According to RCA, the volume of cross- to 9%. The share of logistics sector jumped
strict lockdowns, while travel restrictions border capital invested in Europe dropped by from a five-year average of 12% to 19%, while
and requirements for quarantines upon entry almost 31% yoy in Q1 2021. The UK market the alternatives sector (including living and
have limited mobility and the ability to view attracted over one third of total, followed by other sectors) saw a further rise to 44% of
assets. The total volume invested in the 19 Germany at one fifth. France and Denmark total. These changes in investor priorities
markets we monitor was over €52.7bn, which accounted for 12% and 11% respectively. The mirror the certainties and uncertainties
is 41% down vs the same quarter last year US remained the largest source of capital caused by the pandemic; the steady rise of
and 18% below the five-year average. The (40%), despite the fact that it registered a e-commerce has benefited logistics and
rolling 4-quarter investment volume was high drop last year (-29% yoy). German and harmed retail, changing ways of working have
close to €210bn, the lowest since Q3 2014. Swedish capital accounted for another 13% made investors more cautious towards offices
It is worth noting that Q1 2020 was a record each. and the quality of income streams of the
high quarter, and was achieved just before Overall the share of cross border living sectors keeps attracting new players in
the World Health Organization declared the investment declined slightly from 59% to the sector.
coronavirus outbreak a pandemic in March 57% on average yoy, with the highest drops The multifamily segment alone accounted
2020. noted in Czech Republic, Sweden and France. for about one fifth of the total investment
Germany was still the largest market Travel restrictions have constrained the volume, up from a five year average of 13%.
despite the 52% yoy fall, and captured 30% activity of overseas investors, especially A number of markets stand out with historic
of the total, followed by the UK (-34% yoy) at from Asia, but also the US and even the UK. high levels of activity. Multifamily captured
25%. France’s share dropped just below 10% European capital increased its share of cross a record high of 58% of the total in Ireland,
and annual volumes dropped by -37% yoy. border investment from a five-year average of over 50% in Spain, 40% in Finland and 37%
Sweden (-37% yoy) accounted for 8% of the 46% to 52% in Q1 2021. in Germany. Numerous new specialty funds
total and Denmark entered for the first time have been launched and investments have
the top five with a share of 5%. Alternatives benefit further from been targeting the few stabilised assets and
Smaller markets relying heavily on investment diversification mostly new development projects.
cross-border capital such as the Czech A marked shift in sector focus has been
Republic, Portugal, Belgium and Luxembourg recorded over the first quarter of this year.
European investment Q1 2021 by sector
100%
90%
80%
70%
60%
50%
40% 19%
The share of logistics
30%
sector, up from a
20% five-year average of 12%
10%
0%
2015
2016
2017
2018
2019
2020
2021
Office Retail Logistics Other
Source: Savills Research
savills.com/research 2European Investment
-32%
Overall Q1 2021 office investment activity
was down 32% against the Q1 five-year
average, due to a shortage of vendors openly
marketing prime assets.
European investment Q1 2021 % change vs Q1 20 and vs 5-year average
The total
investment volume
in Q1 was over 90%
€52.7bn, which is
18% below the five-
year average 40%
-10%
-60%
The share of office
investment in Q1
dropped for the -110%
first time since Q1
Portugal
Czech Republic
UK
Belgium
Denmark
Greece
France
Norway
Germany
Sweden
Hungary
Romania
Luxembourg
Netherlands
Finland
Italy
Spain
Poland
Ireland
2015 to 27% of the
total investment
activity
Q1 20-Q1 21 Q1 21 vs 5ya
Source: Savills Research
Fundamentals determined by
Germany was still
the largest market structural factors
despite the 47% The future of work, the rise of e-commerce, ageing population and
yoy fall
rising demand for rental housing are some of the structural factors
affecting real estate fundamentals
Mixed picture in the office Prime CBD headline office Not enough supply of assets
segment rents in Q1 remained stable on to meet demand for logistics
Despite the role of the future average, with a divergence of falling With regards to logistics, a
of the office continuing to divide rents in 42% of the markets and massive shift of investor interest to
opinions, investor demand for the remaining registering stable a market segment that historically
European capital Europe’s prime CBD offices has of rising values (annually). Top has not captured more than 12% of
increased its share of remained resilient. However, performers were secondary/non- the investment activity, causes a
cross border overall Q1 2021 office investment capital cities such as Lisbon (8.7%), lot of competition. Yields are down
investment from a activity was down 32% against Hamburg (8.3%) and Gothenburg to record low levels, with quality of
five-year average of the Q1 five-year average, due to (4.2%) and bottom performers were location and strength of covenant
46% to 52% in Q1 a shortage of vendors openly Dublin (-11.6%), Cologne (-5.1%) driving pricing. Investor confidence
2021
marketing prime assets. and Berlin (-4.3%). The picture is underpinned by the strong
Office occupational market is is mixed for good quality offices fundamentals of the sector.
still slow, but there are signs of a located in secondary areas, which Vacancy rates are falling across
gradual pick-up in tenant demand, in some cases have achieved higher most markets and prime rents are
as speculation about the future of rents, due to tenant demand for on the rise. Prime logistics rents
offices has receded. Companies cheaper space for cost efficiency. increased by 1.3% on average last
in their majority are expected to The market segments that year with strong rises in Hamburg
Multifamily support flexible and agile working, are likely to suffer more are low (7.0%), Central Poland (5.3%)
accounted for but they still expect the majority of specification offices, which may and Rotterdam (3.6%). In Q1 the
about one fifth their staff to be back in office. struggle to find again tenants in positive trend was led by London SE
of the total The slowdown of leasing activity the long-term. This should lead (9.3%), Dublin and Helsinki (2.3%).
investment volume, has translated into a rise of the to redevelopment/repurposing The competitive environment has
up from a five year average vacancy rate to 7.1% from a opportunities, for investors with a already led to record capital values
average of 13% low of 5.2% in Q4 2019, still below more opportunistic risk profile. and shortage of greenfield land
the 9% equilibrium that historically around the large cities is expected
has led to negative prime rental to be the key factor behind rising
growth. rental values.
3European Investment
Prime logistics yields have moved in to record low levels
6.25%
7.00%
Investment volume projection
6.00% 2021
5.00%
5.00%
4.75%
4.75%
4.75%
4.75%
4.50%
4.25%
4.25%
4.20%
5.00%
4.00%
4.00%
4.00%
4.00%
4.00%
We anticipate investment
3.60%
3.50%
4.00% activity to normalise in the
coming quarters, assuming a
3.00%
successful rollout of the
2.00% vaccination programme. This
should lead to a return to some
1.00%
degree of normality, allowing
0.00% travelling and site visits. With
no shortage of capital targeting
Rhone-Alpes
Schiphol
Nord-Pas-de-
Barcelona
Warsaw
Amsterdam
Rotterdam
Dublin
Stockholm
Germany top-6
IDF
Venlo
Prague
Madrid
Milan
Copenhagen
Lisbon
Helsinki
real estate we believe
Calais
investment turnover could
reach last year’s levels, which
Q1 20 Q4 20 Q1 21 was about 10% below five-year
average.
Source: Savills Research
Yield trend projection 2021
With regards to yields,
Acceleration of structural anchored retail schemes and rates have remained higher competition for the best assets
changes in retail to a less extent hypermarkets compared to other property
will continue to put pressure on
The pandemic has brought attract multiple bids and yields sectors during the pandemic.
prime yields. On average we
forward the expected disruption are moving in. The stability and Additionally, demand for rental
project prime CBD office yields
from the rise of ecommerce to length of income streams is what is rising in periods of economic
physical shopping and owners makes this segment desirable uncertainty, as people feel less
to move in by another -10bps
of retail premises face the especially for investors with secure about their future finances and prime logistics yields by
pressure to adapt to consumer’s long-term liabilities. The sector and mortgage lending for house -25bps, hitting another record
expectations for an omni- was traditionally capturing buyers becomes more strict. low level. Although prime
channel experience. In some 5-6% of total retail investment. While PBSA occupancy rates shopping centre yields in most
cases, units and assets may lose This jumped to 25% last year, dropped significantly during the markets are likely to further
their lettability for retail uses but sourcing product to match pandemic, rising student numbers correct by up to 25bps in most
indefinitely, with the option to demand will be a challenge and low supply ratios in many markets by the end of the year,
welcome complementary uses, this year. Supermarkets have European university cities, still we may see some exceptions
which can contribute to customer become the new retail core.(See drive investor demand. Long- for best in class assets in
experience and enhance the sense Savills_Spotlight_European Food term structural changes, such affluent cities.
of placemaking (See Re:Imagining Sector_April 21) as ageing population, shrinking
Retail #2). The location of some household sizes and demand for
void retail assets may also become Living sectors are a affordable housing in combination
attractive for alternative uses, defensive play with shortage of supply of well-
such as services, medical, storage,
dark stores, co-working and
The minimal impact of the
health crisis on investor appetite
designed product support the
investment case of living sectors. -10%
others. for the living sectors is supported
On the contrary, assets by their strong fundamentals and Total investment
related to the food sector, such defensive characteristics. Housing
as discounters, supermarket is a basic need and rent collection
turnover this year is
expected to be below the
five-year average
Investors show confidence in assets related to the food sector, such as
discounters, supermarkets and supermarket anchored retail schemes
due to the stability and length of their income streams.
savills.com/research 4European Investment
Renewed yield compression in Q1
Investor competition for the best assets has led to further yield compression and
record low levels, particularly in the logistics sector
Prime office yields remain keen heavily, increased the inflation forecast defensive play for investment strategies.
The shock of the pandemic has in particular for Oslo, Stockholm office Investors are keen to secure these
brought prime yield compression to a stock has not traded as actively over assets which offer stable incomes and
halt last year, but despite the slowdown the last 12 months, with prime yields long leases to strong covenants. Prime
of transaction activity due to practical remaining stable at 3.25%. supermarket yields were down by 11%
reasons, investor confidence in the Secondary office yields have bps on a quarterly basis and 28bps on a
strength of real estate as an asset class remained relatively stable on a quarterly yearly basis to 5.4% in Q1 2021.
has led to renewed yield compression. basis. The yield gap between prime and
On average prime CBD office yields secondary yields had reached its lowest PBSA and Senior housing still
moved in slightly by 4 bps yoy to 3.58%. point in Q2 last year (68.6 bps) and ever offer some yield premium
On an annual basis, prime office yields since it has been gradually widening, Intense competition has been
have hardened in Oslo by -40bps, with the Prime achievable CBD vs pushing yields down over the past few
London WE, Brussels and Milan by Secondary CBD yield gap at 87.5bps. years. The average prime multifamily
-30bps and Paris and Hamburg by yield has compressed by 120 basis
-20bps. Yields have softened in Paris Logistics yields at record low points (bps) since 2012 to reach a
La Defense, Warsaw and Manchester levels record low of 3.24% in 2020. Prime net
by 30bps. The strongest yield compression has multifamily yields range from 2.4%
Focussing on the core markets, been observed in the logistics sector, in Berlin to 5.0% in Warsaw, although
Paris CBD yields remained stable at reflecting the impact of large amounts in the majority of markets command
2.75% during the first quarter, while of capital competing for limited assets prime net yields of 3.0% to 3.5%.
Berlin hardened by 10 bps to 2.6% in the market. Average achievable Prime net student housing yields
as German investors remain in the prime industrial yields were at 4.5% in (PBSA) are at 4.4% on average, stable
market for super-core assets. London Q1 2020, moved in to 4.3% by the end on a quarterly basis and range between
still remains at a discount to mainland of the year and a further 5bps in Q1 3.5% (Copenhagen) and over 4.5%
European core markets, as West End 2021 to 4.25%. These pricing levels are (Madrid, Lisbon, Warsaw).
yields remain at 3.50% and City yields unprecedented and set new standards Prime senior housing yields range
at 4.00%. UK debt rates remain more for the sector. Prime logistics yields are between 3.3% and 4% and prime care
expensive than other core markets, with already below the 4% threshold in the home yields range between 3.5% and
UK sovereign bonds currently yielding German cities and Ile-de-France, while 5.75%. This means that senior housing
0.7%, providing a similar yield spread still at 4% in the Dutch markets. Prime and care homes offer a yield discount of
to that of the core German and French achievable yields are at 5% or above only 50 and 90 basis points respectively over
markets. London’s global liquidity in Helsinki, Copenhagen, and Lisbon. multifamily assets.
and rental growth expectations will
continue to attract cash-rich buyers. Retail yields are softening, but European supermarket yields Q1 2021 by country
Prime Brussels offices have remained not for supermarkets
stable at 3.25%, with some resilient The trend has been different for 9%
7.25%
demand for ultra-long income outside prime shopping centre yields which,
7.00%
7.00%
8%
non-core markets trading around the continue to soften. Since the end of last
6.15%
7%
5.75%
3% mark. year they were 5.17% on average and in
5.50%
5.50%
5.50%
5.00%
Across Southern Europe, prime Q1 they moved to 5.23%, which is 47bps 6%
4.75%
4.50%
4.50%
yields remain unchanged over the above Q1 2020. On an annual basis the
3.90%
5%
3.50%
course of the pandemic and insurance strongest corrections were observed in
4%
companies are still bidding aggressively London (150 bps) Dublin (75bps) and
for strong covenants, although product the German cities (70bps). 3%
remains hard to find. Non CBD stock is Repriced opportunities have started 2%
subsequently taking longer to transact. attracting investor attention, such
1%
Investors remain in search for long as prime UK retail parks, which have
income within the non-core markets, registered for the first time since Q1 0%
UK
Greece
France
Norway
Germany
Sweden
Portugal
Hungary
Netherlands
Spain
Finland
Czech R.
Italy
Poland
and are more price sensitive to the 2018, an inward yield shift from 6.25%
tenant covenant strength. Since Q3 last year to 6.0% in Q1 2021. Overall
2020, Warsaw prime yields have moved prime retail warehousing yields have
out 10 bps to 4.6%, although Prague moved out by 18 bps yoy to 5.15%.
2019 2020 Q1 21
(4.10%) and Bucharest (7.00%) have Supermarket yields are a noticeable
held stable. exception to the overall retail trend.
Rising energy prices are forecast Their strong performance during the
to impact the Nordics markets more pandemic has established the sector as a Source: Savills Research
5Major investment transactions in Q1 2021
Country/City Sector Property Buyer Seller Price
Industrial (company ABP (106 industri- Asset Buyout
Norway Balder €900m
acquisition) al-led assets) Partners
Primonial / La Fran- Unibail - Rodamco -
France/ Issy-les Moulineaux Office Shift €627.4m
caise / EDF Invest Westfield
Seven retail ware-
UK Retail Brookfield AM Hammerson Plc €382.8m
house parks
BentallGreenOak
UK Logistics Seven warehouses BentallGreenOak Morgan Stanley/ €351.5m
Thor
Two logistics
Germany / Lich, Geiselwind Logistics Tritax Group Dietz Holding €291m
properties
Oaktree / Arpent
Gulf Islamic Invest-
France / Montreuil Office Tour Altais Capital / Maple €250m
ments
Knoll Capital
Spain / Madrid Hotels
Plaza Celenque, 2 -
Archer Hotel Capital
Perella (KKH Prop-
€205m
4.1% yoy
The Madrid Edition erty Investors) GDP growth is forecast
Confidential / (Focus Economics) to
Portugal / Lisbon Offices Portfolio Navigator Singaporean listed Rivercrown €120m reach 4.1% in 2021 and
fund 2022 in the Euro Area
Arete industrial Cromwell European
Czech Republic / Slovakia Logistics Arete Invest €113m
portfolio REIT
Tristan Capital Part-
Logistic Portfolio (7
Italy / Milan, Rome Logistics
assets)
GLP ners / BNP Paribas >€100m
REIM SGR
Paavola Campus ed- Hemsö Fastighets
Finland / Lahti Education City of Lahti €85m
ucational property AB
Marina Village,
Ireland, Wicklow Multifamily Greystones, Co. Real IS Glenveagh €64.5m
Wicklow
Source: Savills Research
Outlook which should stabilise the level of availability. We expect
this to gather momentum throughout the rest of H1
The overarching theme in investor preferences is flight 2021 as businesses begin to contemplate life beyond the
to quality. Prime, core assets across sectors will pandemic.
continue to attract multiple bids, and competition will
lead to some further yield hardening. Supply of assets is We believe that the winners will be high quality, well
restricted, as landlords are cautious about bringing located and connected offices with green credentials,
product on the market. Value-add opportunities also while older assets will require substantial investment to
attract interest, with the fundamentals of the micro- upgrade or convert. These assets are already trading at
location playing the most important role. significant discounts. A significant factor to property
marketability are the ESG credentials of the asset. This
Office take-up in Q1 was still 25% on average down yoy, has become a prerequisite for all investors who are
which is comparable to the market drop post the Global looking more closely to the energy certification of the
Financial Crisis (GFC) and in line with 2009 levels. Post building, waste management, air quality and open,
GFC, it took the occupier markets about a year to green or public civic spaces – in case of city centre
bounce back (30% up in 2010). Are we going to see a buildings.
similar recovery post-pandemic? Consensus forecasts
from Focus Economics point to a robust economic Rising e-commerce penetration will continue to drive
expansion this year. Pent-up spending demand will be demand for logistics space in the coming years.
supported by expansionary fiscal and monetary policies Forrester forecasts that the share of online shares in
as well EU recovery funds. Western Europe will rise from 11.9% in 2019 to 18% in
2021. Most importantly the current supply of space is
GDP growth is forecast (Focus Economics) to reach limited and the supply of land around the major
4.1% in 2021 and 2022 in the Euro Area. Unemployment European cities is also restricted or controlled by local
picked up in 2020 to 8.0% and is predicted to rise planning regulations. This is expected to cause upward
further to 8.6% this year before start falling again in pressure on prime rents in the future, as companies
2022 to 8.2%. This could mean that we may see a compete for the best locations. We expect smaller
gradual return to normality in office leasing this year warehouses within or closer to urban areas to
and a pick up next year. Already we observed an outperform. Forward funding deals and partnerships
improvement in occupier sentiment in the first quarter with developers are often the best route to acquiring
of 2021, and into Q2 2021. We are seeing more examples assets in this market segment.
of occupiers removing grey space from the market,Savills 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
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Research European Investment
Eri Mitsostergiou Marcus Lemli Oliver Fraser - Looen Tristam Larder
European Research Head of Investment Europe Co-head of Savills Regional Co-head of Savills Regional
Director +49 69 273 000 11 Investment Advisory, EMEA Investment Advisory, EMEA
+30 (0) 694 650 0104 mlemli@savills.de +44 (0)20 7409 8014 +44 (0) 7968 550 439
emitso@savills.com OFLooen@savills.com tjlarder@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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