A Preliminary figures compiled by Savills suggest that the total real estate investment volume in Europe for the first quarter of the year will reach approximately €70bn, a 19.5% increase year-on-year. Despite geopolitical events, the real estate advisor expects solid European investment activity for the remainder of the year, notably fuelled by large portfolio and entity deals.
Savills anticipates total European real estate investment volumes for 2022 to reach between €300bn and €330bn, which would be 5-10% above the five-year average, as long as the Russia/Ukraine crisis doesn’t last too long and doesn’t have a long-term impact on the European economy.
Lydia Brissy, Director, European Research at Savills says: “Given the current context, we expect most of the investment activity this year will focus on Western Europe and particularly, the core countries of UK, Germany and France. Our preliminary Q1 figures suggest that those three countries have received 66.6% of the total European investment volume this quarter, up from 61.4% last year.”
James Burke, Director, Regional Investment Advisory EMEA at Savills, says: “For perhaps the first time since the Covid-19 pandemic, prime offices are looking like an increasingly attractive defensive investment as they are relatively protected from higher inflation due to the indexation of rents across core European cities. Based on our preliminary figures, prime office yields compressed further by an average of 17 bps year on year to 3.40% in Q1 2022. Office yield spreads to risk-free rates continue to illustrate the sector’s attractiveness despite some more recent increases in bond yields. Given this, we believe the potential for further yield compression is less likely, and we forecast a stable outlook on pricing throughout 2022.”
Fraser Watson, Director, Investment Advisory at Savills CZ&SK, comments: “The CEE region is expected to see more impact from the Ukrainian crisis than other European regions, however this is not a predication that market activity will stop or witness significant price corrections. Our expectation is that in the short term, deals may take a little longer to conclude, and due diligence of occupiers may focus more on their individual business activities than previously, but so far our conversations with investors does not indicate a drastic change to ‘business as usual’. The medium term impact is less clear and is largely contingent on how long the conflict continues. The expected interest rate rises from the ECB have the potential to cause price movements, however we anticipate gradual rate changes to soften the blow, and that the increased rates will have more impact on non-core product where modelled return metrics are more sensitive to debt inputs.”