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Investors resilient as deals are still being done in lockdown

Tom Leahy, Director of Market Analysis EMEA, Real Capital Analytics

The pandemic has shown how resilient real estate investors can be, delegates heard at Real Asset Media’s Global Outlook 2021 – Europe & UK investment briefing, which was held online yesterday.

‘There are still deals being done in January, despite the lockdowns’, said Tom Leahy, Director of Market Analysis EMEA, Real Capital Analytics. ‘Real Estate investors have found a way of coping with the pandemic’.

Last year the market started on a high and then screeched to a halt in April and May, because of restrictions on movement and the economic shock, but it sprung back into life towards the end of the year.

‘Q1 2020 was the best since 2015, then it slowed down but it picked up again in Q4, when transactions were on a par with the first three months of the year’, said Leahy.

Transactions fell by 44% in the year, but December 2020 showed a year-end boost to deal flow, which augurs well for 2021.

Most of the capital went to Germany, far ahead of any other country in Europe, largely thanks to its strong domestic investor base, which accounted for two-thirds of transactions. In second place the UK, where cross-border investors did most of the deals. France, the Netherlands and Sweden follow.

Other countries performed well, albeit on a much smaller scale. ‘Norway, Switzerland and Denmark stand out, because they attracted a lot of capital and actually did better in 2020 than they had done the previous year’.

A sector-based hierarchy has emerged as a consequence of the pandemic. Hotels are at the bottom, with a drop of nearly 60%, retail and offices are in the middle and logistics, apartments and student housing are towards the top.

‘At the very top is grocery retail, the only part of the market that actually grew in 2020’, Leahy said.

The divergence plays itself out in the pricing as well. Pre-Covid-19 prices of UK industrial and logistics were already going up, retail was going down and offices were in the middle, but these trends have been accelerated by the pandemic.

Surprisingly, distressed sales were only 1.2% of the market, less than in previous years, according to RCA data. But the worst is yet to come, said Leahy: ‘Distress tends to lag, as happened after the GFC. We expect there will be a pick-up in distressed sales later this year, especially in hotels and retail’.