Berlin is predicted to be the top destination for real estate investor in 2021, a year which is also expected to favour investments in data centres, logistics and life-science properties.
According to PwC and Urban Land Institute’s (ULI) Emerging Trends in Real Estate Europe report, investors believe Europe’s core cities, like the German capital, offer liquidity and stability. London was up two places to second as investors considered it as good long-term value and Paris remained in the top three.
Frankfurt, Amsterdam, Hamburg and Munich follow in succession. Spanish capital Madrid takes the eight spot followed by Milan and Vienna.
The report stated that Europe’s property sector is in the midst of a cyclical downturn which is coinciding with long-term structural changes to the asset class.
Regardless, real estate generally is seen as one of the few asset classes to generate acceptable returns at a time of low or negative interest rates, the report said.
The survey which polled almost 1,000 industry leaders across Europe showed that 55% of investors expect to be net buyers of real estate in 2021, but “security of income in non-core assets is causing concern”.
In terms of property type prospects, data centres, logistics and life sciences are at the forefront whereas sectors like retail and offices will be most affected, due to widespread uncertainty related to rent collections amid the pandemic.
Lisette van Doorn, CEO of ULI Europe, said European real estate is at a turning point, trying to work out its future role in society while facing the cyclical challenges following the outbreak of the pandemic earlier this year and the ongoing uncertainty this creates.
“COVID-19 has fast-forwarded a number of trends already started, for example related to digitalisation, remote work and online shopping, but given the artificial environment amidst ongoing lockdowns and government support to employees and businesses, it remains hard to work out the long-term impact.
“The search for yield, which is now even more dominant than pre-COVID, continues to attract investors to real estate, especially core and income-generating, such as residential that continues to appeal to investors, in the ‘safest havens’ across Europe.”
Gareth Lewis, real estate director at PwC UK, said it’s clear that, at this time of significant uncertainty investors continue to see Europe’s core cities as safer bets and there remains cautious optimism.
“With London jumping up two places to second in the rankings - despite the challenges faced by all major cities - many investors see the long-term value.
“Further, central banks’ decisions to depress interest rates for the foreseeable may see an uptick in investment activity as pent up capital is deployed.”
Simon Hampton, real assets leader at PwC UK, said: “The uncertainty of this year has shifted priorities in the sector; we’ve seen a move away from the mainstay sectors of retail, hospitality and leisure, a pause in relation to office, and a strengthening demand for alternative sectors such as housing, data centres, life sciences/health, energy and communications infrastructure and a continued desire for industrial property and logistics warehouses - which all benefit from growing demand in this new environment.
“There’s a growing requirement to look more closely at the value that can be derived from these demand shifts, and newer, emerging asset classes. Investors in the sector are therefore looking beyond real estate and into broader real assets - the built environment and infrastructure that surrounds us. These are all inextricably linked, not only to one another but to how we live, work, consume and spend our leisure time.”
Angus Johnston, real estate leader at PwC UK, said: “The real estate industry faces a uniquely challenging period combining a potential recession in the immediate term and series of structural challenges in the medium term.
“Both are likely to lead to changes to the use and value of our existing stock of real estate. How these challenges play out and how the industry responds to them will define the future shape of our sector.”