The European real estate sector has recovered the levels of confidence prior to the pandemic and faces 2022 as the year of recovery.
This is one of the main conclusions of the report "Trends in the real estate market in Europe 2022", prepared by PwC and the Urban Land Institute (ULI), based on 844 interviews with the main agents in the industry.
52% of the participating executives declare themselves confident in the growth of their businesses in 2022, almost 30 points more than last year and 27 more than in 2020. Profitability expectations also increase with respect to the last two years: 49 % expect returns to grow this year and only 11% expect them to be lower. Positive prospects that are based on the strong demand for assets by investors, especially in those segments less affected by the pandemic, as well as on the abundance of liquidity in the market.
Challenges and opportunities
However, a set of external and internal uncertainties have also been detected, which may affect its final performance over the next 12 months. Among the top five external threats, managers point to cyberattacks (67% of respondents), inflation (59%), tightening of monetary policy (55%) and interruption of business operations (55%) as a result of problems in the supply chains. From an internal perspective, these threats are the increase in construction costs and materials (88%), the scarcity of attractive assets for development or purchase (66%), and the increase in sustainability requirements. and decarbonization in industry (61%).
Alternative segments
Regarding the most attractive assets for investors, during 2022 the alternative real estate segments will gain weight; those beyond offices, retail and industrial. Among the investors' favourites, those related to new energy infrastructures, facilities related to health sciences, and logistics and data centers stand out, occupying the first four positions in the ranking.
On the other hand, shopping malls, shops in urban centers, offices on the outskirts, car parks and hotels are at the bottom of European investors' preferences.
Precisely, regarding the office segment, the report states that, in 2022, we will probably see two very different types of behavior depending on the quality of the assets. The most modern, flexible, well located and, above all, endowed from the point of view of sustainability, will continue with interesting rents and valuations per square meter and in some markets at record levels. However, for the rest of the assets things can be very different.
ESG Criteria
A trend that is consolidating among investors is the importance of environmental, social and governance (ESG) issues, but it highlights the difficulty of the sector in finding consistent standards to be able to compare and measure everything related to energy efficiency and decarbonization of assets. Hence, three quarters of those surveyed say that the best way to access prime assets is refurbishment.
Among the most interesting European cities to invest in, Germany places four of its cities in the top five: Berlin (#2), Frankfurt (#4) and Munich (#5), although the report highlights London as the top of the list, and Paris sneaks into third position.
Madrid and Barcelona are once again among the top ten cities. The Spanish capital stands out for its good opportunities in the residential and logistics segments, and for the strength of its office market. The city of Barcelona, for its part, moved up four places and became more attractive to international investors in a wide range of segments.
"Investors trust the Spanish real estate market and declare themselves optimistic after verifying that the sector has successfully overcome the worst part of the pandemic," says Antonio Sánchez Recio, partner responsible for the construction, real estate and services sector at PwC. In his opinion, "there is no going back on the path of comprehensive transformation initiated in the real estate industry, which comes from the hand of technology, organizational changes, the focus on asset and customer management and incorporating the ESG in the strategy and business model of real estate companies. In Spain, operators are also seeing it clearly and they know that it is an opportunity that they cannot miss as a sector."
In fact, the report highlights that two thirds of those surveyed say that the transformation of their organizations will be one of their concerns in the coming years.
"The European real estate sector is realizing that the exit from the pandemic is not going to be a straight line, that there is pent-up demand to benefit from, but it also needs to understand what 'restarting the economy' really means. The industry is struggling to interpret the potential impact issues that the real estate sector will have, such as supply chain disruptions, rising energy costs, and labor shortages, and how long these issues might last. In this sense, the key priority in the next three to five years will be to assume an organizational impact derived from the change in demand, from the demand for environmental and social sustainability, from the acceleration of restructuring in key sectors, and from adjustments in the owner/tenant relationship with a conception of real estate as a service", concludes Arcadio Gil, member of the advisory board of the ULI.
