The outlook for European commercial real estate in 2022

Despite what has been a tumultuous two years of global social, political and economic uncertainty, the real estate industry has been adapting to the challenge. As a result, the sector is beginning to reflect the most significant changes to how we live and work in the post-pandemic era.

Economies have shifted in the wake of vaccination rollout and pandemic recovery, prompting businesses to adapt to the ‘new normal’ for the long term. As a result, economic experts have revealed that prime commercial real estate is now rising in value — particularly in major European cities, where recovering economies present further opportunities for strong returns.

So, what other areas of property investment show particular promise for 2022, and what must prospective investors do to secure quality assets at this transitional moment in the property market?

Commercial property in the post-pandemic era

Real estate investment offers a hedge against the stock market’s volatility. However, to ensure an asset will provide a consistent source of income, investors must consider and predict the fluctuating demands for the property’s use. As such, there is a growing focus within the real estate investment sector on alternative use properties where demographic trends are leading to increasing demand, such as student accommodation and healthcare facilities.

In the coming year, commercial property development and investment will be driven by economic stability and shaped by new ways of living and working. Surveys of 10,000 workers from the US, France and the UK found that over half favour a hybrid working model and place a premium on spending some time in the office collaborating, deliberating and socialising with colleagues.

As a result, office-based employment is forecast to rise 1–2% in 2022, and office vacancy levels are falling in many major markets. So, as the demand for flexible workspace grows, office buildings in the right location and of the correct specification should continue to provide long-term, stable returns for investors in 2022 and beyond.

With discussions surrounding global warming and the need for climate action at the forefront of societal attention, sustainability and other environmental, social and corporate governance (ESG) credentials will also play an even more significant role in future investment decisions. As such, the development of Class A, best-in-class energy-efficient property assets in sought after locations is increasing in parallel with government regulations and occupier expectations.

Pan-European investment overview for 2022

Forecasts suggest that aggregate European commercial real estate investment volumes will increase by as much as 5% in 2022, marking a return to pre-pandemic levels. Plus, experts predict that euro-area GDP will grow by 4.7%. As such, European real estate investors are optimistic about their investment prospects for 2022 and beyond.

Researchers of the property sector anticipate increased cross-border activity and global investor interest in the EMEA (Europe, the Middle East and Africa) region. Germany, France, the UK and the Netherlands are set to be the most popular European destinations for cross-border capital, as lifting travel restrictions permit investors to reconsider securing assets in countries at advanced stages of post-pandemic economic recovery.

The Organisation for Economic Co-operation and Development’s economic forecast for 2022 confirms that the UK economy will return to pre-crisis levels early this year, and the UK’s commercial real estate sector will enjoy record inbound investments above 2019 levels as a result. The German commercial real estate market is also showing promising signs of growth, as foreign investors see its handling of the pandemic and economic strength as an attractive investment prospect.

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