Real estate investment volumes worldwide had a 28% yoy drop compared to 2019’s record year in terms of activity within the capital markets. According to the report published by JLL, «Global Real Estate Perspective», operation volumes for the whole of the year were set at 762 billion dollars in 2020. In the EMEA region, they reached 282 billion dollars, which represents a 17% yoy drop.
Globally, investment was boosted by a solid performance during last year’s fourth quarter, reaching 267 billion dollars, a 65% increase when compared to the third quarter. Activity during this period followed the quarterly drops’ deceleration trend in 2020. Investment in the fourth quarter registered a yoy evolution of -21%, compared to the -41% yoy evolution of the previous quarter and the -50% yoy evolution of the second quarter.
During the last months of the year, France, Germany and the United States registered a total volume of 150 billion dollars, which represents an 81% increase when compared to the previous quarter. The markets which function as entry doors to Europe and Asia-Pacific reached an upturn in interest during this period. JLL’s report highlights an increase in demand from investors for assets centrally located and with higher prices, especially core office spaces.
«As 2020 went by and the pandemic consolidated itself within the markets, investors learned to weather the storm better. This confidence was reflected on the higher levels of capital allocation during the last part of the year», commented Sean Coghlan, global director for capital markets’ analysis and Strategy at JLL.
Capital seeks stability on rents and operations
The logistic and multifamily segments continue showing a great solidity worldwide, rent collection fees remain stable and long-term favourable factors remain in place. This dynamic is leading to more resilient prices and the level of winning bids is close to expectations.
The office segment had a moderate recovery in terms of investors’ confidence during the fourth quarter and activity intensified in the key markets around the world. Private capital took advantage to acquire quality offices, which represent an almost record-breaking proportion of acquisitions (29%) valued at more than 100 million dollars, since the beginning of the pandemic. Institutional investors are returning to the market, but remain cautious.
Core products register liquidity increase
Core products with long-term leases – which generate so much interest – represent the highest proportion of operations carried out in 2020. High quality prime assets had relatively insignificant price adjustments since the start of Covid-19. Core logistic products’ prices keep reaching new highs and high-quality core products within the multifamily and office segments also registered relatively modest price adjustments, of one single digit, since the pandemic started.
Vulture capital maintains its activity and is increasing its interest on more risky operations. As the process to determine prices continues, we expect this evolution to boost an increase in volumes within this segment and to bring with it the liquidity needed by the hotel and retail segments.
Debt market benefits from favourable interests
Interest for debt’s risk favours the segments and markets which benefit from long-term cyclic changes. Capital availability from moneylenders keeps expanding and the loan-to-value ratio favours the multifamily and logistic segments. Creditors’ interest depends on country and region. Within the EU, markets, which show a more favourable cost of living, expanding segments and corporate relocations are generating a yield spread compression. On the other hand, loan markets in Europe benefit the larger markets, such as London, Paris and Berlin.
The segments facing a greater uncertainty in terms of rents – especially retail and hotels – are registering larger price adjustments. The disparity between risk profiles is also clear: the total effects on prices are more significant on the market’s added value and vulture segments.
«Despite the divergence between many market segments, optimism keeps increasing thanks to the liquidity recovery and the debt’s reduced cost support the capitalisation rates’ compression in segments which show growth and positive prospects for the demand. In 2021, we expect this to mean an expansion of the recovery of the capital markets», noted Coghlan.
According to JLL’s interactions with investors, there is a greater optimism thanks to the liquidity increase, as demonstrated by the increase in offer around the world. Regardless, the signs of improvement on the capital markets could be penalised by the current wave of lockdowns and the uncertainty regarding the economic conditions.