Prime yields in core property markets in Europe remained stable during the first nine months of 2020 as investors exercised greater levels of caution given heightened financing, occupational and liquidity risks across non-core locations. European commercial and residential investment volumes grew 19 per cent during July-September 2020, relative to April-June, to €44.5bn. Office investment was the most active sector year to date at €55bn, followed closely by the Multifamily sector at €27bn invested.
The Savills Global Living World Research Report 2020 outlines remarkable growth in cross-border investor participation in residential markets since 2016. The investments in the residential market were just over $46bn in the last 12 months, accounting for 20 per cent of total investment in the sector. This is up from 14 per cent that cross border deals accounted for just four years ago, in 2016. Moreover, the data, from analytics and insights provider Prequn, demonstrates fund capital allocation towards residential assets has expanded during this timescale from $16.4bn to $26.3bn.
A flight to quality, allied with a flight to familiarity, is propelling investors to seek opportunities in a macroeconomic environment characterised by low or negative government bond yields. These serve to increase real estate’s attraction. In the UK, for instance, the 10-year sovereign bond yield is 0.34 per cent per annum, whilst the City of London’s prime office yield remained unchanged through 2020 at 4 per cent.
The latest European Office Value Analysis by Savills purports that London City and West End remain under-priced on a pan-European basis. Further, a poll of 250 real estate professionals, by law firm CMS in July 2020, found that 33 per cent consider the asset class appealing in 2020. With investors focused on the long term, and on risk, average holdings focused on equities have fallen from 25 per cent to 22 per cent, according to the Mercer ‘Investing in the future – European Asset Allocation Insights 2020’ report released in September. Meanwhile, the fraction being allocated to real estate assets has increased from 49 per cent to 53 per cent.
European commercial and residential investment volumes reached €44.5bn during Q3 2020, marking a 19% increase on Q2 2020, reports Savills.