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By Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers September 2021
During the first half of 2021, we began to glimpse the first signs of a revival of the European office real estate market. In Q2, the economy of the eurozone rebounded as sanitary measures progressively lifted. Investment and rental markets logically bounced back, and recent activity may be indicative of the start of a new cycle against the backdrop of new ESG-related (environmental, social and governance) regulations and changing investor and user behavior.
Promising investment volume figures
The figures are promising. After four quarters of uninterrupted decline (2020), the volume of office real estate investments continued to rise over the first two quarters of 2021, due in large part to accommodative financing conditions and favorable valuation perspectives. Across the board and with the United Kingdom in lead position, all European countries, apart from France, registered an increase in investment volumes. A rebound in France is expected in Q3 2021. Naturally, demand was focused on prime assets, with strong ESG performance. However, investors continued to shy away from dated assets given the capital expenditures necessary for renovation.
Diverging yields of Primary and Secondary assets
Prime office assets in Europe, particularly resilient, continued to offer attractive yields, especially in the low-for-long interest rate environment. However, investors are now demanding a risk premium, subject to local market conditions, on secondary assets.
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