COVID-19 Sparks a Reassessment of European Real Estate Funds
June 30, 2021 — London
Market remains resilient, but investors now looking beyond office-based opportunities
COVID-19 induced lockdowns and related stop-start business activity, combined with increasing digitization, are subtly shifting the make-up of European investors’ real estate allocations, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
The commercial sector has been the focus of the reassessment of European real estate funds as employers rethink their long-term plans for staff returning to the office. Lockdowns have largely proved that working from home is a practical option, accelerating the longer-term trend toward a digitally enhanced society.
According to asset managers recently surveyed by Cerulli Associates over the past year, European investors increasingly favor exposure to industrial and logistical properties, two areas relatively unscathed by lockdowns. They are also showing increasing interest in niche sectors such as healthcare properties, which benefited from the global spotlight on the development of vaccines.
“Managers need to get up to speed on the evolving needs of tenants in order to build compelling products for their clients,” says Fabrizio Zumbo, associate director at Cerulli.
In addition to the effects of the pandemic, the real estate sector has been supported by several tailwinds. For example, the low-interest-rate environment has led European investors to seek alternative sources of stable, yet sufficient, cash flows.
“There has been a greater allocation to alternative investments, including real estate, driven by a desire for enhanced, yet diversified, returns,” notes Zumbo. “One-fifth of the private banks in Europe that Cerulli surveyed expect to increase their allocations to real estate in the next 12 to 24 months.”
Institutional investors are also continuing to diversify their property holdings, with Asia-Pacific exposure set to be of particular interest. For example, foreign real estate now represents 13% of Swiss occupational pension funds’ real estate investments, according to the Swiss Federal Statistical Office, up from 7% in 2010.
Although retail investors remain cautious of open-end real estate funds in the context of the current economic cycle, sustainability is set to dominate conversations in the real estate sector over the coming months. According to the European Commission, physical buildings consume approximately 40% of energy and contribute 36% of carbon emissions across the EU. Asset managers across the region have already stated their intention to respond to clients’ growing interest in sustainability.
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