Investment activity has held up and Europe has performed better than Asia or the US during the recent crisis, experts agreed at the ‘Capital flows – Where is the Capital Heading?’ briefing held at RealX.Global, the virtual trade fair organised by Real Asset Media.
‘The year started on a high, with real momentum in the global market in Q1 before Covid-19 hit,’ said Simon Mallinson, executive managing director, Real Capital Analytics. ‘Then investment volumes fell by 40% in Asia-Pacific and in the US, while Europe has remained above average levels, helped by some big deals’.
Some European countries have performed particularly well, such as Germany where Q2 figures were above 2019 levels, Denmark and the Nordic countries.
At a time when international investors retreated, ‘the markets that have done well are the ones with a strong domestic capital base,’ said Mallinson. ‘This is the worst year on record for the UK, if you exclude Blackstone’s mega deal. The UK was hit by a combination of Brexit and Covid effects, foreign investors pulled back and domestic capital has not stepped in’.
US the dominant force
As Asian and Middle Eastern capital vanished from Europe, local investors and US capital have become more active.
‘In terms of investment volumes the US is the dominant non-EU force in European real estate at the moment, also in terms of commitment to funds,’ said Jason Oram, partner, fund manager, Europa Capital. ‘But overall there has been a withdrawal of liquidity. Pension funds have been under pressure to release capital and to invest less in real estate’.
Cross-border deals have dried up as domestic investors have focused on their home markets, while US capital has gone for big-ticket deals, such as Blackstone’s £4.7 billion acquisition of IQ Student Accommodation in the UK.
The investment volume numbers for Europe look good, but the number of deals is much lower as the market has been dominated by a few large scale deals.
‘Large scale investments are being done but when it comes to transactions under €50 million, deal numbers are down by 50%,’ said Oram. ‘The European investment landscape is quite granular, so going forward how do we provide capital flows to such a large and key part of real estate investment?’