Strategic joint ventures and sale and leaseback deals are some of the emerging structures that are gaining ground in the commercial real estate investment industry in the EMEA, shows a Colliers report.
In the meantime, pricing uncertainty and tighter financial conditions continue to dampen the transaction environment.
“Many investors remain reluctant to place major portfolios and assets on the market when limited buyer appetite and financing constraints make their desired prices challenging to achieve. At the moment, the sweet spot for transactions seems to be between €20-€60 million,” says Luke Dawson, Head of Global and EMEA Capital Markets at Colliers.
Industrial adapted faster to new market realities
In Q2 2023, industrial and logistics (I&L) was the standout sector. Colliers noted that I&L pricing has adjusted more quickly to the turbulent macroeconomic picture, with rental growth encouraging more transactions. Yet owners are still hesitant to place core logistics assets on the market amid adverse conditions.
In the office sector, some benchmark deals were completed, such as international hotel and hospitality giant Accor’s sale of its global headquarters in Paris to the Valesco Group for €460 million. The transaction, advised by Colliers, included a 12-year sale-and-leaseback agreement.
Speaking about transaction trends, Dawson points out that, joint venture structures have become more prevalent as investors look for a growth platform without having to set up their own asset management team. Another notable trend is investors seeking value-add properties they can convert and upgrade to core.
Damian Harrington, Head of Research, Global and EMEA Capital Markets, said: “Investors are now looking for some form of downside protection on offices, meaning that they want to be able to add value to the properties themselves through sustainability upgrades that meet new workplace and energy/emissions demands.”
On the topic of interest rates, Colliers’ experts note that rates have been hiked by the Fed and ECB in July, with the UK Bank of England to follow suit. According to Harrington, this would bring the all-sector yield gap for Europe down to, or almost, zero as of the end of Q2 2023.
“The positive side of the story is that the US and UK are closing in on peak rates, and the ECB is not too far off, so investors can start looking forward to rates dropping back in the year ahead. When that will be is up for debate, and we could see further pricing adjustments short-term. The cost of rolling over debt should bring more assets to market, particularly in Germany and the Nordics where value corrections and exposure to debt are high,” said Harrington.
Mixed investment picture in Europe
Across Europe, Germany continues to report slowing investment volumes. In Q2, property deals totalled around €5 billion, which was similar to Q1 2023. Volumes for the first half of 2023 were less than half of the 10-year average, and Colliers does not expect any significant improvement in the second half of 2023 due to high financing costs and the impact these have on the burden of rolling over expiring debt.
In Spain, hotels accounted for 36% of total investment volume over the quarter, led by deals for holiday hotels in primary markets.
On the Swedish market, transaction activity may see a gradual recovery in Q3. Since peaking in November 2021 Sweden’s listed property sector has fallen by more than 50% and was trading at a near-50% discount to net asset value by the end of Q2.
In the UK, investment volumes fell 60% year-on-year to £6 billion in Q2 2023. Buyer attention has shifted noticeably towards value-add opportunities – of the £2 billion under offer in the London office market, for example, more than half is classed as value-add. The market for core assets, by contrast, remains sluggish due to wide bid/ask spreads.
