Investor Deals Across Europe - An IIG Perspective
Larry Young, Head of the International Investment Group at BNP Paribas Real Estate says although investors are more cautious, deals are still happening across Europe and the next few months will be crucial.
Investors are willing to invest, but are more cautious on tenant grade and location of the asset.
Not surprisingly, occupational markets have felt the impact of the crisis with office take up falling in the key cities across Europe and investment markets have slowed. However, as the markets are tentatively opening up, some vendors are looking at starting sales that would have been ready back at MIPIM, hoping to attract core buyers such as German or French funds. In general, these investors have not seen significant dents in their inflows, and have been relatively active throughout the crisis.
Other investors from further afield such as Asia and the Middle East, are looking closely at the markets, and we are beginning to see more activity as their economies open again. Sovereign wealth funds (SWF) as always have very diverse investment criteria but in general are taking a very much wait and see approach to the crisis but will look at selective deals.
Not surprisingly value add investors are scouring the market and although there is little product, they may find the deals that hit their high return requirements. One of the main considerations is financing and banks have become stricter on financing terms. Cash investors are therefore likely to be predominant as opportunities appear.
In general, investors are much more cautions and are looking at the property fundamentals closely – tenant profile, location, asset quality – but deals are still happening. The months up until the summer will be key, with June property valuations, traveling starting and deals coming onto the market. If a second wave of the epidemic can be avoided, and Europe continues to open up, we should see investment volumes increase.
With deals still happening, how do we manage to continue to execute cross-border business during the lockdown?
Even during the worst part of the crisis, there were still transactions and successful bidding processes across the asset classes - especially logistics, residential and CBD office assets. In continental Europe, the two large markets of France and Germany have held up relatively well for core centrally located office deals, notably with domestic investors continuing to close deals. The UK had begun to recover well after the elections and more clarity surrounding Brexit, deals were still agreed. Due to the shortage of prime assets, demand for anything coming to the market has continued to be strong. In other markets, bidding processes for CBD and residential portfolios have still carried on, notably in Milan and Amsterdam. Even in the retail sector there has been activity, notably in France and Spain.
To carry out deals, investors have been forced to up their games on their technological knowhow using virtual visits, drone technology, and the acceleration of video call technology. Also, not all markets have had total lock downs. The deals that did stall were either very large, or without financing agreed, or with value add angles where parties were not able to agree new terms. As already mentioned, we see investment markets picking up, but also changing and evolving to the new ‘norms’ of the post COVID-19 world.
Asia came back to business almost two months ago. Are investors looking to actively invest?
Despite the success of most Asian governments in controlling the pandemic, the economic impact on business will continue to be felt for the next 12 months at least, and a number of the markets (notably Singapore and South Korea) are suffering the second waves in the crisis. Given the decrease in consumption and redundancies, GDP figures of Asian economies will fall to record lows.
Asian clients continue to be interested in European real estate and this is shown by their constant queries on where we see the markets post COVID-19 and where the opportunities are. As ever London is one of the key targets, as well as the office markets of the key continental European cities and logistics zones. Hotel, high-end residential and prime retail are also potential targets, notably from Hong Kong privates who are now facing the return of social unrest following the easing of the lock down.
So in general, the appetite is there and capital is waiting for the markets to fully open up. Travel is still important, as although many Asian investors have offices in Europe, or use local partners and investment managers, often the decision making for large deals is done in Asia. We therefore see some deals occurring, notably from the well-established parties, but volumes are unlikely to be significant before the opening of the borders.