Property investors are betting that demand for office space in Europe will rise as COVID vaccinations are rolled out and people return to work. Global office real estate leasing volumes dropped 31% in the first quarter. This is according to the real estate broker JLL, although Europe proved more resilient than the United States.
Keith Breslauer, managing partner of European property investor Patron Capital said that the perception that the office is over is complete nonsense and none of the smart money believes it. Breslauer worked on three new office development opportunities in British regional cities on one day last month. The impact of this pandemic on working patterns remains unclear. HSBC plans to nearly halve its global real estate. Deloitte has told its UK staff they can work wherever they want. U.S. banks such as Goldman Sachs and JPMorgan have ordered their employees to get back to the office. James Corl, head of the private real estate group at U.S. investment manager Cohen & Steers said that some will expand and some will contract, some won’t change at all.
The investors said that a supply shortage that pre-dates the pandemic is also supporting prices even though companies may need 20-30% less space. Simon Martindale, fund director at Mayfair Capital, said that the real estate manager was arranging a large regional office. The pandemic has hurt large firms in Europe. Helped by strong government support most have continued to pay rent, analysts and brokers say.
Matthew McAuley, director, global research at JLL said that U.S. centres such as San Francisco and New York have not been so resilient. Brokers says that the investment transactions dropped sharply due to the pandemic. According to Real Capital Analytics, deals have taken place, prices for offices in Europe’s central business districts have risen 13% in 2021 from 2020. And other industry sources say that the U.S. property investors are increasingly interested in Europe.
Simon Banks, RE Capital’s head of UK real estate said that when you look at deliverable supply in the next few years, it is very constrained. And the location is ever more important. David Greenbaum, CFO of central European property firm CPI, said that the pandemic had not changed its approach to the office, which makes up more than 50% of its portfolio. He also added that despite missing out on training and collaboration opportunities, the desire for home-working was likely to wane among the staffs.
Logistics firms are struggling with the costs of last-mile delivery. Those changes, and a return to normal shopping, could put a lid on the sector. Zachary Gauge, European real estate analyst at UBS said that there is so much money chasing one asset class. And also, he finds logistics a bit concerning.