AEW sees compelling opportunities emerging after current storm
In its 2021 European real estate outlook, “After the Storm” AEW explores how investors can best navigate out of the current crisis.
Despite the recent news of a potential vaccine, 2021 looks to be a year characterised by a slow recovery hindered by both Covid-19’s impact on the wider economy together with the latent existing headwinds of unresolved trade frictions and political uncertainties. The report highlights a return of non-performing loans (NPL) as the Covid-19 crisis drives a deterioration in consumer and corporate credit quality.
As a result of upcoming NPL portfolio sales, AEW sees clear opportunities in mispriced, good quality secondary assets across the board. Prime retail should also prove attractive in 2021 following recent repricing and the pending shift to more sustainable turnover based rents.
Hans Vrensen, Head of Research & Strategy at AEW, says: "When we issued our “Calm before the Storm” outlook for 2020 we fully anticipated some form of catalyst to end real estate’s extended run. What we did not expect was that that volatility would be created in the form of a global pandemic that would cause unprecedented disruption to the way we all live and work. While worse than the GFC in its immediate economic impact, strong policy responses from governments have softened the repercussions, so far. However, we expect the related lower for longer interest rate environment to further increase investor appetite for real estate, underpinned by the long term asset backed income it offers.”
“As we emerge from the crisis, logistics and residential will continue to be our top picks. However we also expect to see opportunities in prime retail, as values bottom out and rents are rebased or restructured to become more sustainable. We also expect to see the re-emergence of NPL opportunities as they did post GFC, although to a lesser degree as lower supply and more conservative lending have reduced the downside risks.”
Rob Wilkinson, CEO of AEW, adds: “The extent to which the real estate sector has evolved and been impacted by the COVID-19 crisis over the course of this year has surprised everyone. Our long term investments strategies such as logistics and residential have continued to perform well, as the pandemic has accelerated trends that were already prevalent, and we will continue to invest in these areas. With some light now at the end of the tunnel as we look towards 2021 we are also well placed to use our European network to deploy our clients’ capital into opportunities which we expect to emerge as markets adjust to the recent Covid-19-related volatility.”