Despite the fallout from the pandemic the quantum of international capital chasing opportunities remains at extremely-high levels. We expect to see this being deployed once travel restrictions are lifted.
Q4 has seen a significant number of new entrants preparing to enter the market, with many multifaceted players seeking core and core plus assets with a particular emphasis on value-add. A significant number are ready to move quickly.
Social housing assets will be sold thus determining the true value of this sector. With a substantial number of PRS schemes under development and in planning, this too will remain a key sector in 2021. There is no shortage of investor appetite at all levels.
The industrial and logistics sector is proving to be resistant to the wider shocks of Covid-19. Forecasts for the sector are positive with strong occupier market underpinned by a shortage of accommodation, the rise of e-commerce and Brexit-planning. The main issue in this sector is the lack of scale to satisfy demand from buyers.
Healthy competition
The occupational market for offices remains in pause mode while large multinationals (particularly tech sector) continue to adopt stringent work-from-home policies. Although this is likely to remain the case until Q2, the impact on the investment market is yet to be determined. To date, the shortage of core product in the €20 million to €60 million price range has been the impediment to deals, rather than investor interest. We are seeing new entrants seeking non-core, value-add opportunities for offices thus creating healthy competition in this space.
Although the retail sector is treading water, it has now divided along the lines of food, household, furniture and DIY, all of which are dependable. Retail Parks are holding up well because they can socially distance. Most landlords have cut “blend-and-extend” Covid-19 deals with their tenants. However, worse is to come as leases from 2004-2008 that have 15- and 20-year breaks are approaching the endgame. As these break dates approach many retailers will be able to cut deals that could cut rents by anything from 15 to 50 per cent. Within the next seven years most of our comparison retail real estate leases will be substantially turnover-related, and have multiple (typically three-year) breaks. Food store and DIY leases will be more valuable as they are Covid-resistant and leasing terms will be longer and more structured.
Primarily, due to travel restrictions, there were no South Korean buyers in 2020, however we expect this buyer pool to re-emerge in 2021. Furthermore, we are seeing an increase in overseas buyers setting up offices here to asset-manage existing stock and source new opportunities. Off-markets deals will continue to be a feature of the market.
Michele McGarry is a director and head of capital markets at Colliers International
