EMEA CRE withstands Russia’s invasion of Ukraine in Q1, but future impacts unclear
The first quarter of 2022 was dealt a devastating shock by Russia’s invasion of Ukraine - despite this, market resilience and historically high levels of dry powder continued to support investor interest in commercial real estate (CRE) in Europe, the Middle East and Africa (EMEA) according to the latest Capital Markets snapshot for the region released by Colliers.
The snapshot nonetheless indicates that in Q1 investor interest in CRE continued to recover from the pandemic, with many investors seeing property as a hedge against rising inflation. Provisional figures for the first quarter suggest a 5% rise in volumes from the same quarter of 2021, with rolling 12-month volumes up by 7%.
Colliers notes that the shock to global supply chains and commodity markets has exacerbated inflation that was already rising rapidly. “Inflation is being felt in the construction industry, among others,” said Luke Dawson, Managing Director, EMEA Cross Border Capital Markets. “More costly materials have added some unpredictability into the development of new housing and commercial property.”
Both occupier and investor performance has been strong across most European markets in Q1, with renewed confidence in the office sector. “One of the businesses leading the charge was internet giant Google, which closed a £762.5 million deal for London’s Central St Giles development and a €583 million transaction for The Warsaw HUB office complex in Poland’s capital. This points to long-term post-pandemic confidence in the region’s office markets,” explained Richard Divall, Director, Cross Border Capital Markets.
Hotels and leisure, which were hit hard by the pandemic, but have been on a clear revival path since mid-2021, with Southern Europe, in particular, seeing renewed interest. Spanish hotels attracted €1.1 billion of investment in the first quarter of 2022 – more than in the entirety of 2020. “Travel restrictions are easing across the globe, and investors have been anticipating pent up consumer demand for leisure travel to drive a strong recovery in hotel markets during 2022. However, the sharp rise in the cost of living could dampen some of this interest as household budgets come under pressure” said Luke Dawson. “That said, we anticipate higher-end leisure destinations to maintain their appeal, with hotel occupancy rates for the 2022 holiday season closing back in on pre-pandemic levels.”
Poland sees marked improvement, but outlook uncertain
Despite Russia’s invasion of neighbouring Ukraine in February, Poland posted a strong quarter, with €1.5 billion of investment recorded, which is up significantly year on year. However, Colliers expects Western investment to become more selective as the year goes ahead, leaving investors from Central and Eastern Europe to continue their growth trajectory.
“The first quarter's results showed great confidence of investors in the Polish market, which recorded consecutive record-breaking investment transactions in the office and logistics sectors. We are expecting this trend to continue - the second quarter will also abound in large transactions, both in Warsaw and in regional cities,” said Piotr Mirowski, Senior Partner, Head of Investment Services at Colliers in Poland.
Germany posts another stellar quarter
Investors ploughed a record €18.2 billion into Germany’s CRE sector in Q1, three-quarters of it in the form of strategic corporate acquisitions in crisis-resistant sectors such as DIY and food-anchored specialist retail stores. The trend of investment into industrial and logistics properties remained clear, with the segment in second place behind offices in terms of investment volumes.
UK returns to form
Colliers notes “mountains of capital” pursuing CRE deals in the UK, with the lifting of travel restrictions in many parts of the world bringing global investors back to the British market. Investment volumes reached £13 billion in Q1 2022, up 10% on last year and in line with the 10-year average. One notable trend was a resurgence of interest in shopping centres, which saw the highest quarterly investment volumes in five years.
Italy sees a record opening to 2022
Q1 in Italy saw investment volumes reach a record €3.1 billion. This reflected the closing of the massive Project Dream portfolio of offices, industrial and logistics properties, retail sites, living spaces and hotels for €842 million. Most of the 68 properties are in Milan and fall into the value-add category, with strong refurbishment potential.
Quiet start to the year in France
Investment volumes declined 7% year-on-year in France in Q1, amid geopolitical uncertainty related not only to the Ukraine war but also the French presidential election. Activity in the greater Paris region was particularly subdued. Offices remained the main driver of the investment market, representing nearly 80% of activity.