Europe New post pandemic world emerges

According to the recently published Savills European Investment report, investment in income-producing living sectors will remain at unprecedented levels, supported by rising demand for rental property across all demographic groups. A busy year of major portfolio deals in these sectors means the living and care sectors are predicted to capture almost a third of all European investment activity, while logistics will take a 20 pct share. Capital has also been targeting food-anchored assets and supermarkets, as well as strong performing retail parks and warehouses. The average prime European retail warehousing yield is 5.41 pct. This represents a yield gap with shopping centres (at Q3 2021) of 10 basis points and compares to a five-year average of 75 basis points. European average prime supermarket yields are around 5.38 pct and edging downwards. Investors trying to hedge against rising inflation by looking closely at their sector and geographical allocations will continue to channel capital into logistics. The sector is expected to demonstrate above-inflation rental growth of over 3 pcy y-o-y over 2021 and 2022. Investment demand for logistics real estate is also reaching a record level in Poland, where the sector is driven not only by the growing share of e-commerce on the domestic market but also by the development of the industry in neighbouring markets, for which Poland is becoming a geographical logistics hub. According to preliminary estimates of the investment volume, after the third quarter of this year, has already reached nearly EUR 1.7 bln, accounting for over 47 pct of the total transaction volume. Savills expects a modest uptick in the office market. Prime CBD rents in markets with tight demand and supply conditions should see modest - rental growth in the medium term. Higher asking rents may also be linked to a premium for best in class buildings that meet the highest ESG requirements.

Changes to how offices function, which were forced on them by the pandemic, have set the development direction for the modern office sector. The last 18 months have been a time to develop effective work models and have shown the needs a modern office should meet not only during a pandemic, but also over the long term. This should stabilise the situation on the market, building a strong foundation for the office sector for the coming years. The first signs of a return to investor optimism for offices in the investment market are already visible, which is confirmed by the preliminary estimates for the volume of investment transactions after the third quarter of the year, which stand at over EUR 1.2 bln. CEE capital has become a substitute for domestic capital, which typically has wider purchasing opportunities when external investors are less active.
Marek Paczuski, deputy director of investment at Savills, Poland