The coronavirus crisis has led to a significant shift in the investment strategies of institutional real estate investors. “Lower risk, lower return” is the mantra of the moment. 58% of the 150 professional investors in Germany, France and the UK surveyed by Union Investment for its investment climate study are currently pursuing such a strategy. The figure was just 35% prior to the outbreak of the pandemic. The shift is especially pronounced in the UK, where security is the main investment motive for 79% of those surveyed. Before the pandemic, it was 50%. Nonetheless, there is no general reluctance to invest. Only 5% of the European investors in the survey intend to avoid all investment in real estate in the current phase.
The COVID-19 pandemic has also triggered a significant shift towards climate-friendly investment by institutional investors, with 54% of respondents planning to invest more in this segment. 49% are aiming to acquire more core properties as a result of the virus, while 42% indicate that they will be investing more in their own country. This change in emphasis is particularly strong in France: 71% of French investors are planning climate-friendly investment, 65% intend to buy core properties and 59% are choosing to invest increasingly in their domestic country.
The UK, in contrast, has seen a less marked change in investment focus due to the coronavirus pandemic. The study found that only 31% of respondents intend to focus more on climate friendliness, 36% on core real estate and a mere 14% plan more investment in their own country. However, 43% of UK investors intend to invest more heavily in other property types. Overall, 41% of the institutional investors covered by the survey plan to do likewise.
Health care and logistics are the most favoured asset classes among European investors in the current market phase. 65% of respondents expect that more capital will be channelled into these categories. “Both these property types are less prone to crises and help to stabilise cash flow in a portfolio,” said Olaf Janßen, head of Real Estate Research at Union Investment. Having said that, the residential asset class also remains attractive: 55% of survey participants anticipate rising inflows into this segment.
The majority of European real estate investors (57%) expect the German property market to recover fastest from the coronavirus pandemic. The Berlin and Frankfurt markets, in particular, are rated highly by respondents: 42% believe the German capital will make a rapid recovery, while 38 per cent cited Frankfurt. The real estate markets in Paris (30 per cent of respondents), London (29%) and Stockholm (23%) are also considered to have good chances of recovery. The study indicates that the markets in Milan (55%), Madrid (47%) and Barcelona (33%) are likely to struggle with the consequences of the pandemic for longer. “Germany benefits from its economic strength and the government’s successful crisis management to date. Berlin and Frankfurt, like other German locations, have a modest pipeline of new office space, giving them a good chance of getting back to normal faster,” added Janßen.
Germany is the anchor of stability in the current real estate investment climate index. Compared to the last survey six months ago, the indicator for Germany has fallen only slightly from 63.2 to 62.6 points. The situation is significantly different in France (down 9.5 points) and the UK (down 6.1 points). In both countries, this is due to a change in location factors and expectations. In France, the location factors sub-index declined by 13.1 points to 57.5 points, while the expectations sub-index fell by 20 points to 37.6 points. A similar picture can also be seen in the UK.