The economic slump caused by Covid-19 has taken its toll on the European property investment market and deal volume fell by 43% in Q3 2020 to €44 billion compared with the same period of 2019, according to research firm RCA.
RCA’s European Capital Trends Q3 2020 report shows that transaction volume in the first nine months of the year was down 19% to €172 billion.
The firm confirmed that the pandemic is speeding up major long-term trends in European property: the decline in bricks-and-mortar retail is worsening; the logistics sector is going from strength to strength.
“Two quarters on from the start of the Covid-19 pandemic in Europe and a clear hierarchy of investor demand has emerged,” said RCA senior director EMEA analytics Tom Leahy.
“Industrial, especially logistics assets, apartments, and grocery stores sit at the top of the table. In the middle are offices, where worries over rising vacancy and falling rents seem to be holding back some investors. And, down at the bottom, are hotels and large swathes of the retail sector,” Leahy said.
While Germany has been an investment favourite, RCA said that the third quarter was the slowest period for dealmaking in Germany since 2013. The apartment sector there was 40% down on the five-year average, while quarterly office investment was at a seven-year low.
However, German core office markets are historically expensive and the lack of activity may reflect a widening gulf between seller and buyer expectations on pricing, RCA added.
German investors dominate cross-border traffic
German investors have been the major source of European cross-border capital in 2020 so far, spending just over €11.2 billion said RCA. Allianz was the most active investor placing €2.2 billion, with DWS, Union Investment, Deka and Patrizia each having committed more than €1.0 billion in the first nine months of this year.
In the UK, which lagged Germany in investment transaction volume for the first nine months of 2020, there was a rebound in regional property markets thanks to industrial sector deal activity. Just under £1.8 billion was spent, mostly on logistics assets.
This included Legal & General’s £201 million forward purchase of a unit pre-let to Amazon a deal represented the highest price paid for a single logistics big shed that RCA has recorded in Europe.
In France, third quarter transaction volume was around half the level seen a year ago, but was in line with Q2 2020 which is better than Europe as a whole. In Paris, quarterly investment totalled €3.9 billion, of which €3.2 billion was for offices.