European real estate market outlook - 1st half of 2022

For the fifth consecutive time, BNP Paribas REIM presents its European property market outlook in its study "The Lighthouse - European Property Market Outlook". This is an opportunity for our analysts to summarize and shed some light on the market at a time when the triptych "post-Covid - inflation - rising interest rates" is being played out.

#INFLATION

1. Inflation could lead to an increase in rents in sectors where there is already a shortage - particularly for prime assets, where rates will have little or no impact from the rise in interest rates, as they are already invested by numerous equity players such as SCPIs.
2. Inflation will have a greater impact on more highly leveraged players and investment funds, for which financing difficulties may arise.
3. Acquisitions that are highly leveraged will tend to decrease or even disappear.

#ENERGY PERFORMANCE

1. In the era of rising energy costs and external dependency issues, the topic of performance and self-sufficiency has never been more important - energy is becoming a key investment criterion and it is very likely that the correlation between value and energy performance will increase.
2. Supply difficulties and increased construction costs resulting from the health crisis are slowing down construction rates, which is likely to result in a decrease in inventory. Restructuring of existing assets should therefore increase.

#OFFICES

1. Reinforcement of polarization with, on the one hand, prime sectors that will continue to strongly attract investors looking for well-serviced locations and capable of attracting talent in attractive and appealing sectors and, on the other hand, an acceleration of the decline of the least attractive sectors.
2. Liquidity still higher in Germany and the Benelux.
3. Importance of "green" offices

#RETAIL

1. Disappointing performance during the Covid crisis, resulting in a lower allocation of this asset class within funds - potential opportunities could be seized.
2. Growing prominence of flagships stores - true brand image and customer experience venues that combine physical and digital sales. 

#HOTELS

1. Great return of tourism that announces good performance in 2022. RevPar grows by about 50% compared to 2020. Countries offering solid domestic consumption stand out and show a better recovery like Germany, France and the UK.
2. Despite the rise in rates - so rate compression remains possible.

#HEALTHCARE

1. Healthcare assets are on the rise. While they represented 0.5% of total commercial real estate investment in 2010, they now account for more than 3% of investment.
2. The population is aging - the number of people over 85 is expected to reach 22 million by 2040 in Europe. 
3. Despite the rise in rates - so rate compression remains possible.

#LOGISTICS

1. A very in-demand sector - demand has doubled over the past ten years. 
2. Supply is under pressure, on the one hand, by the difficulties of the construction sector and, on the other, by restrictions on land consumption that limit the development of these assets, which require a lot of agricultural land.
3. Acquisition therefore appears to be strategic in countries such as France, where the net artificialization of land is tending to decrease before it is completely banned in 2050.
4. The cost of rent remains low for companies in the logistics sector, representing 3 to 6% of expenses according to CBRE - the increase in rent therefore has, to date, little impact on the overall costs of the supply chain despite a low average sector margin.

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