ECONOMICS AND POLITICS
Weak global trading conditions continue to weigh on European growth, primarily reflecting a struggling manufacturing sector, but with far greater resilience in services. The main risk to Europe is escalation of US-EU trade tensions, with further falls in demand for European exports. Despite this, labour markets remain robust and wage growth has accelerated in several countries providing further support to consumer demand in Europe.
The accommodative policies of central banks are reinforcing our expectation of lower interest rates for longer. Prime yields are nearing their floors, although we still expect compression for the best assets to continue into 2020. Investors are increasingly favouring real estate in multi-asset portfolio allocations, we therefore expect 2020 volumes at least around the 2019 level in continental Europe, with a possible rebound in the UK.
The construction and operation of buildings contributes to around 40% of worldwide greenhouse gas emissions. Driven by a combination of regulatory and social pressures, we expect companies to devote more attention and rigour to ESG policies that integrate organisational, portfolio and asset level objectives. Investors, developers, occupiers and advisors, as well as asset, property, and facility managers all have a role to play in this transition.
The main real estate sectors will see varied fortunes, driven by specific factors. The office market will see supply conditions beginning to loosen, with vacancy levels likely to plateau or rise as new development completions accelerate, and leasing activity slows.
The retail and logistics sectors will continue to be supported by slowing but steady economic growth. Retail sector performance will be country-specific, depending on the level, and growth speed, of internet sales. Innovative and accessible retail schemes that offer experiential, convenience and mixed-use elements will appeal to both consumers and investors.
Logistics will continue to benefit from demand from expanding online retailers, and will see innovations aimed at increasing efficiencies and consumer convenience.
Other sectors – multifamily, hotels, operational real estate and data centres – look likely to attract rising levels of investment.
In multifamily we expect new format-commit and forward-funding structures to emerge, with quality of design, amenities and fit-out increasingly critical.
Hotels will benefit from an increase in the number of overnight visits, and funds will invest more in variable-income operating structures, alongside specialist operating partners.
Operational real estate, such as student housing and healthcare, will remain a key focus for institutional investors.
Shortage of net-leased stock in regulated sectors will drive cross-border and sector diversification, and in turn harmonisation of pricing and structuring.
The data centres market will continue to grow in 2020 in response to growth in capacity needs of cloud service providers. The rising scale of individual end-user deployments will be a key theme in the year ahead.
CBRE’s annual EMEA Market Outlook report takes a comprehensive look at the prospects for real estate in the year ahead. We cover the economic and political outlook, capital markets, and the prospects for each of the main real estate sectors as well as focussing on the growing importance of sustainability for the real estate sector in the region.