Appetite for investment with discounts skyrockets in Europe

Appetite for investment with discounts skyrockets in Europe

CBRE‘s latest analysis across Europe over investors’ and owners’ sentiments concerning asset prices during the pandemic, showed that there is a great appetite for acquiring shopping centres at reduced prices since 99% of the professionals involved in the study are looking for further discounts in decentralised shopping centres and 91% are seeking discounts on assets of this type located in core locations.

The sentiment from potential sellers is similar since 87% of decentralised shopping centres’ owners admitted to being more willing to provide discounts in September when compared to April. 70% of owners of shopping centres located in core locations are also willing to do it.

In its report «2021 EMEA Real Estate Market Outlook», CBRE commented that «discounts have started to materialise across retail and hotel assets, especially those in value-add and core-plus developments. Bid-ask spreads are subsequently tightening», it added.

But these are not the only ones, since the same sentiment affects decentralised offices. Around 74% of professionals also admitted to seeking investment in decentralised Grade A assets with lower prices. When questioned on reducing the prices of Grade A office buildings located in core locations, 1 professional out of 4 admitted doing it.

The survey’s results also showed that the willingness to sell with discounts is, in the office segment, smaller, since only 34% of the current decentralised Grade A office asset owners and 8% of Grade A office asset owners in core locations consider this option. Within the core region, around 20% of owners consider selling at higher prices.

«Assets that are highly sought-after, such as Grade A offices, appear to be trading at a premium», mentioned the consultant in the document, further adding that «meanwhile buyer and seller price expectations for other office assets remain farther apart» and as a consequence, «this is likely to limit upside potential in these segments».

In terms of logistics, the trend seems to be different: 68% of investors are willing to bid above asking prices. On the sellers’ side, there is a similar trend since 62% admitted their intent to ask for higher selling prices. In this segment, there are few buyers and sellers willing to carry out operations with discounts.

On the European level «buyers of logistic assets have also indicated a willingness to bid-up prices», it can be read in the report. Investors’ interest in logistics increased so much that CBRE predicted that in 2021 «the logistics market should continue to outperform» and explained that «this is thanks partly to a resurgence of private equity and institutional sales. The growing implementation of sale-and-leaseback strategies taking place may also further boost deal flow», it added.

 

Real estate investment should grow 8.5% in 2021

CBRE advanced that it is expected that European commercial real estate investment volumes will end 2020 down 25%, being set at a value slightly higher than 240 billion euro. But predictions for next year are encouraging: CBRE’s current house view projects volumes to increase by 8.5% in 2021 and return to pre-COVID norms by the second half of 2022, provided current vaccine timelines remain on track.

For the consultant, «mid-2021 may prove to be a key period when investment volumes stage a strong recovery» and as remarked in the study «opportunity also exists for discounted acquisition and/or development in up-and-coming locations».

In short, the consultant considers that, as general uncertainty in the market subsides and travel restrictions are lifted, investors will return to investment markets. The investor appetite for logistics, multifamily and prime office assets, especially in major markets, should continue through 2021. Considering the amount of equity targeting the logistics and multifamily sectors, yields across these asset types may see incremental compression in 2021.

Distressed sales in the hotel and secondary retail assets will likely materialise in the near term. In the prime centralised hotel and retails assets, as well as within decentralised and secondary offices, yields are expected to increase during 2021 and, depending on broader economic and social conditions, potentially into 2022.

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