European real estate: Differences between sectors to persist in 2021, says Rothschild

According to the Edmond de Rothschild Economic Research team, the expected recovery in economic activity in Europe will provide more support to commercial real estate markets. Some of the main trends in place since the start of the crisis will persist in 2021, with differences in momentum between the four main real estate sectors (rental residential real estate, retail, offices, and industrial and logistics). 

In 2020, the consequences of the pandemic varied widely between commercial real estate sectors in Europe. The price of retail stores fell sharply. This was the hardest hit sector. At the end of 2020, these prices had still not initiated a recovery, contrary to the trend in the other sectors. Prices also dipped in the office sector, generally the most dependent on the economic cycle. Conversely, the industrial and logistics real estate sector benefited from the crisis, often even reinforcing the trend begun several years ago. The prices of rental residential real estate continued to rise in 2020. 

The momentum should differ among the four main real estate sectors. 

Demand for rental real estate would remain solid, while construction was disrupted in several countries, delaying the arrival of new assets on the market. The close peripheries of urban centres would harbour more potential, and the trend of demand being directed to larger assets would continue. Prices should in general continue, or resume, their growth, but at a more moderate pace. At the national level, the strongest growth rates are expected mainly in Germany and the Netherlands, and the UK market could also surprise on the upside. 

Demand for offices and their prices are likely to pick up along with the expected economic improvement. Structural changes in demand, notably owing to the teleworking possibilities proven over the last year, and potential regulation that could follow the pandemic could favour the highest-quality and best-equipped assets. The most central locations should continue to attract, but the upside potential of prices would be the highest in well-served close peripheries. These price increases would remain contained. The situation is now expected to be more favourable in the UK, Switzerland and France than in Germany, the Netherlands or, especially, Italy. 

After a trying year in 2020, the retail sector should remain depressed, but further price decreases appear unlikely. Opportunities could begin to arise, notably among spaces benefiting from the attraction of activities, infrastructure and services that require customers and users to come in person, or where the leasing companies offer this kind of appeal. The situation could be less dismal in Switzerland. 

The industrial and logistics sector should experience strong growth in 2021 again, although the pace of the rise in prices could be less impressive than in 2020. The entire sector should benefit from the will to strengthen control over supply and 

distribution chains in Europe. In particular, the light industry and urban logistics real estate segments would continue to benefit from the trend in favour of e-commerce. The strongest growth is likely to continue to be in Germany and the Netherlands, while in the UK this sector could harbour good surprises.