Sector’s confidence highest since 2014: Emerging Trends

Although business confidence within the real estate sector has reached its highest level since 2014, 68% of real estate leaders perceive a need to transform their organisations over the next three to five years according to Emerging Trends in Real Estate Europe 2022 – Road to Recovery, published by the Urban Land Institute and PwC.

The sentiment survey of 844 European real estate sector leaders also revealed that London comes top overall for investment and development prospects in European city rankings, ahead of second place Berlin, reversing last year’s top two positions, with Paris remaining in third place.

The finding might be somewhat surprising given the continuing uncertainty following Brexit and the effects of the ongoing health crisis, particularly on the office sector.

As one European private equity fund manager is reported as saying: “London and Paris are the two cities in Europe that will see the largest change of use of office space going forward. The cost of occupation and the expense and time of commuting are substantially higher there than other cities.”

London’s yield gap makes it ‘value for money’

The report concludes that the UK capital “benefits from the depth of its market and undoubted gateway status”. However, it adds that a widely perceived yield gap of around 1% between London offices and their continental equivalent gives it an advantage in terms of value for money. Others cited confidence in London’s ability to reinvent itself as a base for technology and life sciences.

On the future of offices, 85% now expect a lasting increase in time worked remotely and 74% see a growing valuation gap between primary and secondary offices.

The report also asserts that the location of assets may become crucial “with regional cities in continental Europe having been less adversely affected by fluctuations in workplace occupancy during the pandemic than the major capitals”

Lisette van Doorn.

Future repurposing will see a shift towards a mix of uses for both offices and retail.

In terms of investment sectors the top three in the ranking are new energy infrastructure, life sciences and logistics facilities – offices and retail are not even in the top 10.

While the real estate market has emerged from the worst of the covid crisis with renewed enthusiasm respondents did outline concerns and the report says “professionals are on high alert for the next disruptive event.”

Concerns noted are cybersecurity, rising interest rates and inflation, and notably the rise in construction costs that has already occurred as development projects resume.

“European real estate is coming to learn that the exit from the pandemic is not a straight line,” ULI Europe CEO Lisette van Doorn said.

“There is pent-up demand from which to benefit but it also needs to get to grips with what ‘restarting the economy’ really means.

“The current uncertainties are reflected into quite strong sentiment swings while, at the same time, the industry is struggling to interpret the potential impact issues like supply chain disruptions, surging energy costs and labour shortages will have on real estate and how long these issues might last.”

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