Colliers revealed 67 percent of EMEA investors (and 60 percent of global investors) chose quality office assets in major markets as their top strategy picks. European cities like London, Paris, Berlin and Munich have retained their allure and will be in high demand next year.
The appeal of offices not only stems from the realisation that demand for this asset is here to stay, particularly in cities supported by strong transport infrastructure and high amenity values, but also the ease of large-scale capital deployment that office assets represent. The rising cost of construction, viewed by 4 in 5 (81 percent) investors as a pain point, limiting new builds, renovations, and retrofit projects amplify the race to the core, and investors expect the stark imbalance between demand and supply will see core office values increase by up to, or more than 10 percent over the next 12 months.
Investing with intent
“Based on our 2022 Global Investor Outlook, pent-up demand and delayed transactions will translate into momentum next year. However, investors face an increasingly complex and competitive marketplace, coloured by new regulations and COVID-19 uncertainties. With the amount of dry powder readily available, offices in Tier 1 cities are seen as safe-haven assets that offer an attractive route to deploy capital,” said Tony Horrell, Head of Global Capital Markets at Colliers.
This year’s report shows ESG (environmental, social, governance) considerations are prominent, with nearly 3 in 4 investors integrating environmental factors into their strategies. This desire to invest with intent is both a means of future-proofing their assets and responding to the stakeholder and societal pressures requiring them to respond to the climate crisis.
Sustainability is creating a greater chasm between newer, high-quality assets in prime space and older, second-hand stock in city submarkets. To protect their portfolios, investors are concentrating on Grade-A buildings that prioritize sustainability and wellness credentials, while disposing of ageing, non-compliant assets that risk potential obsolescence if they are not regarded as retrofit opportunities to capitalize. This recalibration of assets under management will drive market turnover.
“We are seeing increased pressure from investors on ESG issues, which in the core and core-plus segments have become one of the key selection criteria over the last 6 months. The lack of appropriate ESG credentials already affects not only the valuation of the property, but also the liquidity of real estate in the investment market – some funds are not allowed to acquire real estate that does not meet specific ESG requirements. We expect this trend to strengthen over the next 12 months,” said Piotr Mirowski, Senior Partner, Head of Investment Services.
Partnership key to realizing diversified portfolios
The pandemic introduced new risks and heightened others for certain real estate assets. Investors are looking for more ways to ensure their portfolios are resilient and diversified, exploring specialized assets such as data centres, life science facilities, affordable and student housing that benefit from their strong ties to demographic and societal trends.
“Joint ventures, local partnerships and M&A strategies are great for savvy investors who want to get ahead. Alternative assets present compelling investment cases, but their unique characteristics make teaming up with the right partner essential. There’s a clear need for expertise to fill knowledge gaps and safely guide capital, particularly those in nascent sectors,” said Damian Harrington, EMEA Head of Research and Head of Global Capital Markets research.
Other EMEA key findings from the Colliers 2022 Global Investor Outlook include:
The top three assets of choice include industrial & logistics, which is still unsurprisingly the top asset of choice, with 69 percent of respondents most likely to invest in this asset in 2022, followed by 57 percent in offices and 40 percent in multi-family.
Europe’s hotel sector is once again on the investor radar thanks to a nascent revival of travel and tourism. But labour shortages have made the return of some hotels difficult. Repurposing hotels remains a trend that is attracting value-add players.
Investors expect price increases in luxury retail, convenience and food-anchored assets. Traditional shopping centres will likely undergo a period of transition, with the repositioning of department stores a potential prelude to near and mid-term trends.
Alternative segments attracting the most attention in Europe are life sciences, student housing, affordable housing and data centres. The life science market in Europe lags behind the U.S. and the data centre market is less mature compared to Asia, which can make it difficult to secure income-producing assets at scale.
The office locations of choice are London (45 percent); Paris (30 percent); Berlin (30 percent); Munich (30 percent). Investors are looking at offices as a potential area where they can see returns versus the market.
The survey shows multifamily/BTR assets gaining appeal, particularly among investors in the Nordics and Southern Europe. Traditional homeowners’ markets such as Poland are attracting significant interest as social and economic trends point to more people renting.
“The results of the “Global Investor Outlook 2022” report clearly confirm the interest in the living sector, which has become one of the most desirable assets – 40 percent of investors mention it as one of their top three. Paradoxically, the pandemic contributed to the development of the sector in Poland, during which investors were more cautious when it comes to the retail and hotel market, and turned towards the stable living sector, well known from their local markets. The development of the living segment in Poland is influenced by many factors, including a supply gap of nearly 3 million units. It is also worth noting that at the same time the perception of renting is changing. Poles, accustomed to the traditional model of owning a flat, are increasingly considering renting as an alternative,” said Dorota Wysokińska-Kuzdra, Senior Partner, Head of Corporate Finance & Living Services.