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CBRE: Euro-economies back to 2019 levels by 2022

EMEA Economic activity is well-positioned for a bounce back in H2 according to CBRE. The firm says that despite the effect of COVID-19 pandemic on economic activity, investment will return to pre-pandemic levels by 2022.

However, in its Real Estate Market Mid-Year Outlook 2020 for EMEA, CBRE says that the effects of the pandemic were so strong in the first half of the year that that the year as a whole will still show “a substantial contraction”.

CBRE predicts euro-area GDP will contract by 8.3% in 2020, before rebounding strongly by 6.4% in 2021. It will take until 2022 before euro area GDP recovers to the levels seen in Q4 2019.

Euro area real GDP (2019=100)

The firm says short term interest rates will remain low until 2023, with central banks keeping long-term interest rates at historically low levels, which is positive for the real estate market.

CBRE believes European commercial real estate investment will fall by 30% to 40% year on year in 2020 but if there are no further challenges will return to their pre-pandemic levels by 2022.

Investor appetite for commercial real estate is expected to strengthen in the coming quarters as investors are attracted by the wide spread of property yields over long-term interest rates.

CBRE also expects the temporary mass remote working experiments brought on by COVID-19 to accelerate the trend of flexible working strategies, rather than lead to a wholesale structural shift away from office use.

“A high-quality, amenity-rich city centre office is likely to be used to both reflect a company’s ethos and brand and to help in the ongoing war for talent and retaining staff,” the report says.

This will renew the attractiveness of prime trophy headquarters space, particularly in core office markets, further widening the gap in performance of prime and secondary office stock.

Jos Tromp, head of research continental Europe for CBRE

Jos Tromp, head of research continental Europe for CBRE, said that the pandemic is a “black-swan” event that abruptly ended the previous cycle, which had been marked by record investment. The sudden decline in economic activity has hit the occupier side of the market in particular. But Tromp added: “The continued low-interest rate environment, coupled with ample unallocated capital means the market is well-positioned for a bounce-back with certain sectors proving very resilient.”