The European real estate investment markets have been regaining their equilibrium this year, after some (but by no means all) international buyers were grounded at the heights of Covid-19. While the current macro-political situation has impacted investor sentiment for some locations – and we hope for peace to be restored and for displaced Ukrainians to be able to return to their homes as soon as possible – most global investors are firmly back on the ground and active in a number of jurisdictions.

In London, Hong Kong’s Chevalier International Holdings bought 30 King Street for £49.5 million and Sun Venture acquired 120 Moorgate for £148 million, both in February. Middle Eastern parties are back looking in Belgium, the Nordics, Eastern Europe and Ireland, in addition to the geographies they traditionally focus on, and we also know of Malaysian buyers considering assets in France and Spain. North American buyers, meanwhile, are largely keeping their options open: with their very significant reserves, they’re looking to buy across the risk spectrum in almost all locations.

But the first quarter of 2022 has seen some cross-border investors begin to switch course a little, as the volume of capital returning to pre-pandemic levels has compressed yields at the same time as an inflationary environment has led to the costs of financing rising, pushing down cash-on-cash returns.

Many global investors have entered an "exploratory phase" as a consequence: looking beyond their typical sectors and geographies as they hunt for precious (preferably inflationary-proof) income. 

This trend is exacerbated by the stage we’re at in the current extended real estate cycle: available stock is extremely limited, with assets being held for longer before being traded. In addition, many of the biggest investors are consolidating through mergers and acquisitions, setting up new vehicles focused on lower risk income-driven assets to sit next to their traditional funds pursuing valued-add or opportunistic real estate strategies. This latter move also accentuates the lengthier hold period trend, as income plays run almost in opposition to the quick ‘buy, fix, sell’ approach which delivers the returns for value-add or opportunistic focused funds and leads them to be traded as quickly as possible. 

With these factors in mind, the trends and markets that we think are worth keeping an eye on in the next few months include:  

• Investors previously focused on logistics now considering retail warehousing – particularly those in the regions.
• Groups targeting London offices now looking at the UK regional offices; while those already active in Europe look further afield than the usual gateway cities of London, Paris, Frankfurt and Berlin.
• All key markets in Dublin, but particularly offices and logistics. The city offers an attractive yield and, for European investors, operates in euros which provides an advantage.
• Offices in Southern Europe, given their protection against inflation due to their usual indexation of rents, plus lower prices than those in more core European countries.
• Student housing, particularly as a proxy for multifamily, given there is very limited stock available in the latter sector.

In the current environment, vendors who are willing to sell assets in the above areas, can - in our estimation – be fairly confident of plenty of parties willing to buy.

Further information

Contact Rasheed Hassan

Spotlight European Cross Border Investment