Savills Global Sentiment Survey sees rising occupier demand
With the easing of restrictions across the world, real estate occupier demand has been the first to begin to recover, according to Savills Global Market Sentiment Survey.
Of those markets surveyed, 30 per cent have seen a rise in occupier demand post lockdown. For those countries no longer in lockdown – two thirds of which were in Asia Pacific – or near the end of lockdown, this figure stood at 34 per cent.
The latest internal Savills Global Market Sentiment Survey is intended to provide a snapshot of the market conditions across 33 global markets, surveyed between 3–5 June 2020, and based on the views of Savills heads of research in each geography.
The survey is also indicating that the availability of real estate debt is in decline, with some 58 per cent of respondents stating that real estate debt has become less available and on worse terms than usual. As lockdown restrictions across the world are starting to loosen, many investors are now waiting to see what the shape of the recovery will look like. Naturally, banks have become more cautious and have tightened their lending criteria.
This is particularly the case in EMEA and North America, where 75 per cent of respondents stated debt was less readily available and on worse terms than usual, compared to 38 per cent in Asia Pacific. Volumes of smaller deals in particular have been hit. According to RCA, in Europe the number of deals under EUR20 million are down by 60 per cent since the start of 2020, many of which may be reliant on debt to complete.
In Europe, lending rates have as much as doubled for some core German offices, while in the US a survey by the Federal Reserve found that banks had tightened lending standards across all major commercial real estate loan categories.
Oli Fraser Looen, co-head of Savills Regional Investment Advisory, EMEA, says: “With no shortage of equity in the market, the tightening of the debt market is unlikely to be a barrier for the larger institutional players and some may now view this as a key buying opportunity to acquire core assets in a less competitive environment.”
According to the survey, prospects for the logistics sector are the most positive, given the scale of investor demand and low vacancy rates, with 79 per cent expecting an increase in transaction volumes in the second half of 2020. This is a trend expected to be sustained into 2021 and 2022. Logistics capital values are anticipated to increase accordingly, with 47 per cent of markets predicting increases from H2 2020.
The sentiment survey also suggests that logistics, healthcare, and to a lesser extent, residential are proving to be the most resilient sectors, with some rental growth reported in a minority of markets, though the majority of respondents still reported rents to be unchanged or even falling.
After a challenging first half to 2020 where 88 per cent of markets surveyed reported a decrease in transaction volumes in the office sector, prospects for the second half of the year are brighter. More survey respondents expect to see an increase in transaction volumes in the office sector (50 per cent) than a decrease (22 per cent), with the balance expecting ‘no change’.
Survey respondents expect 2021 to mark the beginning of the wider recovery in office transaction volumes, with 75 per cent of respondents expecting to see transaction volume growth in the office sector (22 per cent expect to see no change, while just 3 per cent anticipate falls). This growth is likely to be sustained into 2022, when 72 per cent of markets expect further increases in activity to occur.
Paul Tostevin, Director, Savills World Research, says: “Transaction volumes are expected to begin to pick up in the second half of 2020 before more sustained growth in 2021, but the speed and shape of recovery will vary from country to country. Many purchasers are expecting to see ‘Covid chips’ on price of between 5 per cent and 10 per cent, at a time when few vendors are being forced to sell and redeploy capital. Therefore, the rate of growth in investment volumes going forward will depend on the alignment of buyer and seller expectations.”
The outlook for capital values is therefore mixed. In the case of office markets, 50 per cent of respondents expect prices to remain the same in the second half of 2020 and 9 per cent expect to see rises. Conversely, slight decreases in capital values are expected in 38 per cent of markets in the second half of 2020, while just 3 per cent expect to see significant decreases.
Oli Fraser Looen adds: “While no one is expecting 2020 to be a record investment year, we are expecting Q4 in particular to be incredibly active in terms of product coming to the market and transactions completing. There will undoubtedly be a flight to core assets but the other key trend that will have as big an impact for us going into 2021 and beyond will be the pricing buyers apply to the market conditions in this new world. The key question will be - do the sellers accept the buyer’s view on pricing or sit and hold in the belief the market will only get better?”