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REALX.Global: Europe buoyed by domestic investors in 2021

Simon Mallinson, Executive Managing Director, EMEA & APAC, Real Capital Analytics

There are positive signs about the year ahead for European real estate, delegates heard at Real Asset Media’s Global Capital Flows in a time of Covid-19 presentation, which took place online last week on the REALX.Global platform.

“Early indications for 2021 show that Europe is holding up better, helped by domestic activity, while the US is slow and AsiaPac is still weak,” said Simon Mallinson, executive managing director, EMEA & APAC, Real Capital Analytics. “It’s early days but it’s a positive outlook so far.”

There is no distress to be seen in Europe yet, except in retail and hotels, prices are showing relative resilience, sellers are holding firm and lenders are showing forbearance, he said.

“The supply/demand balance means that prices will hold or even increase, and there’s a lot of capital out there wanting to invest in real estate,” Mallinson said. “Capital is plentiful, but opportunities are not.”

The first glimpse of 2021 is in line with what happened last year, when volumes were down by 33% in the US, by 26% in Europe and by 23% in Asia due to some recovery in a few markets like Australia and South Korea.

“Asia never got going in 2020, while the US started the year with a record January and ended with a record December, but was hit hard in April,” said Mallinson. “EMEA was resilient until the summer and then declined, because it has a longer pipeline of deals and longer times to conclude transactions than the US. Some markets were extremely strong, like Norway that recorded a 140% increase.”

Deals still done despite the most difficult circumstances

The main positive is that, despite the severe lockdowns, there was no GFC-style liquidity crunch last year and deals still got done in the most difficult of circumstances, he said, especially in the “beds, sheds and meds” sectors.

Residential in its various forms, logistics, medical offices and life sciences all did well. The industrial sector was the best performing sector with a 7% decline, while hotels were hit the hardest with a 65% drop.

Investors made different allocation choices: “In the US, industrial overtook the office sector for the very first time,” said Mallinson. “In EMEA, apartments have cemented their Number 2 spot behind offices, while in AsiaPac office is first but industrial has overtaken retail to claim the Number 2 spot.”

Investment managers still dominate the field and the listed sector is still strong, but private equity nearly halved its activity in 2020.

“Private equity tends to be more global now, their business model is skewed to cross-border activity, so they struggled last year,” he said. “It is easier to underwrite a core deal from your desk than to find opportunistic, value-add deals.”