The EMEA (Europe, Middle East and Africa) region will be the most prominent global cross-border real estate investment destination in 2022. Specifically, it will receive more than 60% of the international capital flow in the sector. This follows from the European Outlook 2022, prepared by local experts from the international real estate consultancy Knight Frank, and which offers a summary of the firm's vision of European real estate markets in the new year.
The United Kingdom, Germany, France and the Netherlands will be the main destinations for international capital flows in the European real estate sector. All sectors of the market will benefit in the new year, as cross-border investors are in greater interest overall. In particular, 2022 is expected to be a year of great activity for the office investment market, with interest in European logistics continuing, and the residential sector continuing as an area of growing attractiveness. ESG will continue to increase its relevance in real estate, both for investors and end customers.
The good numbers expected for 2022 are driven by the benefits of vaccines and other tools we have to deal with the pandemic, the evolution of which is the main source of uncertainty. Thus, despite some short-term economic recovery headwinds, we are slowly moving to the stage where economies and real estate are able to recover. Cost-driven inflation remains a prominent concern for investors, expected to remain transitory. The European Central Bank (ECB) itself has indicated a wait-and-see approach in terms of tightening monetary policy.
“We are not yet over the pandemic, but we have seen a strong recovery in housing markets over the last few months. This evolution makes us optimistic for 2022, since the real estate sector continues to attract large amounts of capital in this environment of low interest and lower yields”, explains Jorge Sena, Managing Partner of the Knight Frank Commercial Area.
The United States will be the main engine of the new course for the real estate sector at an international level. According to Knight Frank forecasts, the North American country will be the provider of almost half of the capital that will be injected into the real estate markets during 2022.
Spain, an outstanding destination for investment
The Spanish economy is in the process of recovering, and employment has already returned to pre-pandemic levels. The European Outlook 2022 also predicts a good year for the Spanish real estate market, in terms of attracting cross-border investment.
From a real estate point of view, the private rental housing sector (Build-To-Rent) will continue its upward trend in 2022. New developments offer more amenities that attract young people who find it more interesting to afford the option of a home for rent.
As for the logistics sector, investor interest remains high. Spain is catching up in terms of e-commerce and the demand for last mile logistics and warehouses continues to increase. Within the EMEA region, Spain will be among the top five destinations for international industrial investment in 2022, according to the Active Capital report. Yields are likely to be further compressed, reaching numbers close to 3%.
Relative to retail, supermarkets are the most defensive subsector and one that attracts investor interest as it offers long-term leases and has performed well during the pandemic. Cross-border investment in the Spanish retail sector will be in the top ten within EMEA in 2022.
It is also expected that 2022 will be a good year for the hotel investment market, as the Spanish tourism sector recovers and hotel occupancy levels increase. According to Active Capital, within EMEA, Spain will rank second in 2022 in terms of international capital flows in the hotel sector, driven by US investors.
Offices have been one of the sectors hardest hit by the health crisis, but the market is expected to see increased demand as workers return to the office. The need for flexibility means companies are looking for fewer desks, but more meeting space. The increase in demand from companies is also positive news for the investment market and, within EMEA, Knight Frank's Active Capital study predicts that Spain will be in the top 10 for cross-border office capital flows in 2022.
In the words of Humphrey White, General Director of Knight Frank, “the Spanish real estate sector will continue in 2022 on the solid path of recovery. The demand contained by the confinement, the investment opportunities in Spain and the environment of low rates are the engine of this growth. The most attractive assets for investors will continue to be, among others, the rental housing segment (Build-To-Rent) and logistics. In 2022 data centers will be a growing trend, although it is still a very specialized segment.
Humphrey adds that investment has fully recovered, but “we've seen some polarization across sub-sectors. Offices should be designed as attractive spaces for employees, because we have all learned to work from home. Offices must be productive, meeting and creativity places”.
