Recovery faster than credit crunch - Savills

The real estate consultancy also estimates, however, that neither the speed nor the depth of the crash will be as bad as during the credit crunch of 2007–2009, when volumes across the continent plunged by 72 pct.

Eri Mitsostergiou, Savills’ European research director, has commented: “We believe that short-term headwinds are likely to have a negative impact on deal flows over the next three to six months. This time however, high liquidity, low interest rates, constrained development pipelines and a better capitalised banking sector should contribute to a faster recovery of investor sentiment.”

EUR 70.6 bln of real estate was transacted across Europe in Q1, according to Savills, which is 25 pct above the five year average, with 61 pct of this activity in the form of cross border deals. The consultancy indicates that investors remain particularly active in the prime market segment, where several deals are currently in progress with minimal price discounts.

“We anticipate some price softening, as the market is not underwriting the rents and capital values pre-Covid-19. Nevertheless, we do not expect prime yields to correct to the extent they did post GFC, as return requirements above the risk free rate remain satisfactory,” forecasts Eri Mitsostergiou.

Marek Paczuski, the deputy head of investment at Savills Poland, adds: “We expect the investment activity on the real estate market in Poland will decrease to a similar extent as our pan-European forecasts, with retail and hospitality volumes dropping the most. The investment in logistics, currently the most sought-after property sector, shall remain resilient to market turbulence. The relatively high reliance on foreign capital – which in the first months of the lockdown may have tended to concentrate on the key, most liquid Western European market – may at least partially be offset by high demand in the industrial sector with its dynamically growing stock and market share, which in Q1 2020 accounted for an exceptionally high share of volumes of app. 58 pct – compared to app. 11 pct across Europe. The overall investment volume in the office sector will depend on the few large transactions initially planned this year, the potential completion of which will demonstrate the real impact of the Covid-19 crisis on market liquidity.”

As well as logistics, Savills feels that multifamily apartment buildings will turn out to be among the more resilient sectors, being driven more by non-cyclical factors such as urbanisation, shrinking households and rising house prices than by market fluctuations.

Prime offices are another sector that should weather the storm, but the success of the homeworking experiment may have significant implications on companies’ future real estate strategies. However, the impact of the economic slowdown on occupier demand and rents will not become fully clear until later this year and in 2021.