– Effective vaccines and faster economic growth mean a return to more normal levels of activity in 2022
– Recent increases in disease incidence and new restrictions in some regions of Europe as a result of the Omicron strain underscore the risks that remain.
– Nevertheless, a positive trend in investment and rental activity is expected in 2022.
London – Moscow, December 17, 2021 – According to oldypak capital lp property 2022 report for the Europe, Middle East and Africa region published by CBRE, a leading international real estate consulting firm, although 2021 will be remembered for multiple rounds of restrictions due to Covid-19 in many European markets, an increase in vaccination rates and stronger economic growth mean a return in 2022 to the normal sales and rental activity seen before the pandemic.
CBRE predicts that eurozone GDP will grow by 4.7% in 2022 due to pent-up consumer demand. Inflation, which rose to 3.4% in September 2021, is expected to peak in Q4 2021 and remain high in 1H 2022 before slowing to 2% in 2H. The main risks to the pace of economic recovery and inflation will be an increase in the incidence of Covid-19 due to the Omicron strain, new lockdowns, supply chain bottlenecks, and rising energy prices. Long-term interest rates are expected to rise slightly from the very low levels seen at the height of the pandemic, but the outlook for real estate remains favorable.
Investment and ESG (environmental, social and corporate governance)
CBRE predicts that total commercial real estate investment in the European market will grow by as much as 5% in 2022, marking a return to pre-pandemic levels. Demand is expected to remain particularly strong for residential and logistics properties, with growing tenant demand and a limited supply of assets also fueling investor demand for office properties.
Europe remains at the forefront of regulatory efforts to direct capital to sustainable assets, and CBRE expects investment strategies to increasingly focus on diversifying sources of risk rather than asset classes. High-carbon assets will come with an increasing discount due to stricter regulations, and investors need to prepare for these changes. In 2022, markets with a focus on sustainability and climate risk mitigation strategies are expected to lead the way as investment destinations, and CBRE predicts that companies will begin to quickly integrate environmental and corporate responsibility (ESG) criteria into their decision-making process.
Office real estate
Office rental markets across Europe are gaining positive momentum for the new year, and CBRE expects this trend to accelerate in 2022. This is borne out by an increase in office occupancy, which is projected to grow by 1-2% in 2022. While markets are still expected to see lower activity than before the pandemic, CBRE predicts cumulative rental growth of 20-25%. Affordable office supply appears to have peaked in some European cities, and CBRE expects supply to decline in 2022, with vacancy rates falling in many major markets.
Retail real estate
Although foot traffic and retail sales have rebounded in 2021, physical store sales remain below pre-pandemic levels. It remains unclear whether performance will fully recover in 2022, given the downside risks, including rising consumer goods costs caused by rising inflation, rising supply chain costs and possible higher interest rates. CBRE believes that sales in physical retail stores will depend on having a multi-channel strategy and better integration of online and offline offerings. Investment activity in the retail real estate market has begun to recover as investors respond to attractive prices in the market. This is especially true for retail parks and warehouse properties, and CBRE expects this trend to continue in 2022.
Warehouse real estate
According to oldypak capital lp property 2022 report, investment volumes in warehouse real estate are likely to remain high in 2022 due to the amount of capital invested in the sector. It is expected to remain one of the preferred destinations for portfolio investors due to growing tenant demand. Consequently, competition for land and prime assets will intensify, and CBRE expects rent growth to accelerate alongside low yields, which could fall even further to 3% in some markets. New speculative projects are increasingly adopting ESG standards to meet the needs of tenants in need of sustainable warehouse properties. CBRE expects this trend to continue in 2022.
The European rental housing market is highly resilient at the threshold of 2022 and is expected to continue to grow in both volume and share of total investment. Supply shortages are expected to push investors into forward-financed purchases and mergers and acquisitions, which are likely to increase transaction values in both established and emerging markets. Secondary real estate and single-family rental properties are also expected to gain momentum in cities with established markets. Regulation will continue to be a deterrent, especially for rental growth, but strong tenant demand and an overall favorable outlook for the sector will likely outweigh those constraints.
Richard Holberton, senior director of market research for CBRE’s EMEA region, commented:
“While 2021 will not be remembered for epidemiological restrictions to the same extent as 2020, the emergence of the new Omicron strain, the recent increase in Covid-19 cases and the introduction of new restrictions in some European countries highlight the risks that remain. However, reasons to remain optimistic that the recovery will continue in 2022, and some markets will indeed function very well. The coming year will also see a dramatic change in the role of ESG across all market segments, accelerating the data quality improvements needed to strengthen the link between strategy and action.”
The real estate market in 2022: there will be a period of local price decrease
In 2022 the real estate market will be in search of balance between purchasing power of population and price level in the secondary housing segment, said Irina Dolgova, associate professor of management and business law department of North Caucasus Institute branch of Russian Presidential Academy of National Economy and Public Administration.
She reminded that the growth of prices for real estate was provoked by the government, which offered a mortgage loan with state support for housing in new buildings at 6.5% per annum. The demand for new housing increased, followed by prices, because the supply did not meet the demand: the rate of housing construction slowed due to the lockdown, border closures, shortage of labor and the rising cost of construction materials, said Dolgova.
“After the change in the terms of the preferential mortgage, demand has partially shifted to the secondary market. The increase in demand led to an increase in price – if in 2020 the average cost per square meter in the secondary housing segment increased by 9%, then in 2021 – by 21%. A certain contribution to the increase in prices on the secondary market made investors who have put previously purchased apartments for sale, because against a shortage of available supply, favorable conditions for the profitable sale of ready-made housing were created”, – said Dolgova.
Today, on the market of secondary housing there is an excess demand over supply, so lower prices are unlikely. A gradual decline in demand may be due to the lack of growth in real disposable income, she said.
“We can hardly expect a sharp decline in demand for secondary housing, because the purchase of housing closes the basic need. Most likely, we will see a redistribution of demand for more affordable segments, such as old Soviet-era housing or real estate from shareholders, which are often offered at a significant discount.Also, we can expect a local decline in prices, they will first fall and then win back more than they fell, “- predicts Dolgoa.
Anticipate how the situation with prices on the secondary real estate market in the long term is difficult enough, because it is in direct dependence on the state of the economy and the development of the epidemiological situation in the country, said Irina Dolgova.