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Forward deals reveal office investment endures: RCA

Augsburg-based Patrizia’s forward purchase for €72 million of the 15,000 sq m Diagrame office building in the 22@ District of Barcelona, announced earlier this week, is part of a trend it seems.

Despite the doubts cast over the future of offices following the apparent success of enforced working from home, the increased Q2 share of investment volume attributable to forward transactions indicates that “investor demand for the asset type is still alive”, according to property research firm RCA.

Patrizia has purchased Diagrame from Cain International and its partner Freo Group. The development is due for competition in late 2021.

CGI of Patrizia’s planned Diagrame building, Barcelona.

Eduardo de Roda, Patrizia’s country manager Iberia, explained: “The 22@ district of Barcelona is one of the largest urban regeneration areas in Europe. There is, however, still a major shortage of Grade A office stock in that area and the Diagrame building addresses that demand.”

According to RCA, forward commitments have leapt to a record proportion of European office deal volume, partly as a result of their resilience and partly attributable to the slump in the sector.

The purchases of properties under development came to just over €3.3 billion ($3.9 billion) in Q2 2020, up from €3 billion a year ago. While it now represents 22% of total office asset sales, deals on standing stock have declined 55% year-on-year.

“Forward transactions have traditionally held appeal for institutional investors as a means to acquire good quality offices, especially in markets where the flow of existing buildings onto the market has been constricted, competition for assets is steep, and prices have climbed,”said RCA senior director EMEA analytics Tom Leahy.

“New buildings will often incorporate the latest technology and better meet environmental standards,” Leahy added. He also said that the additional complexity of such deals, a category which includes forward funding/development finance deals and forward purchases, makes competition less intense.

According to RCA, Paris was the most active market for forward commitments in the first half of 2020.

La Francaise completed the €150 million purchase of a 22,000 sq m office building in Malakoff, to the south of Paris,on behalf of a consortium of investors. The building will complete in 2021 and is prelet to aerospace firm Safran for nine years.

In Belgium, Deka has acquired Silver Tower in Brussels for €200 million – a yield of 3.3% which is below the current reported prime yield for offices in the city. The asset is let to the Brussels Regional Public Service (SPRB) on a long lease and is thus considered to be at the safe end of the risk spectrum, Leahy said.