According to Savills Research, real estate investment reduced substantially due to Covid-19 related travel restrictions. The pandemic has introduced a number of fundamental changes that were ensuing. Working from home has become a commonplace (from 9% to 40%) whilst online shopping penetration has increased (from 12% to 16%), leaving office buildings underutilized, bringing questions relating to security of income.
Investment strategies shift towards low-risk assets with defensive characteristics. In 2020, investors competed for core assets, driving further yield compression. the demand for secondary offices has been affected negatively by the rising popularity of teleworking, reducing office sector share from 40% to 35% (Q1 – Q3).
Stability of income from the residential sectors has attracted new capital, raising its share from 12% to 17% (Q1-Q3). In 2021, Savills expects investment strategies to focus on low risk and income stability. Sectors that have defensive characteristics and benefit from structural changes will capture most of investor focus. Availability of prime stock will determine sector allocation and competition for the best assets should keep prime yields low.
In EMEA, investors have focused more on their local markets, reflecting the ‘flight to familiarity’ among cross-border investors. Across the Middle East, warehouse demand has been strongest in established markets such as Dubai and a few emerging locations across Saudi Arabia and Egypt. This trend is likely to firm up over the next few years as logistical challenges are addressed and real estate and business infrastructure (e-commerce) further matures in these markets.
The share of investment in the residential sectors, especially multifamily and senior housing, is likely to rise further. Although office may lose some of its share, most likely it will remain the dominant sector. The importance of offices for talent attraction will sustain occupier demand for the best in class.
Savills also expects more interest for alternative sectors such as healthcare, life sciences and data centres, though volumes will be restricted by limited stock availability. Although total transaction activity will rise, it is likely to remain below 2019 levels.
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Source: Savills Research Impacts: Real estate investment tips for 2021: EMEA
