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© Reuters. A general view of the empty streets in the business district near the central station during the coronavirus disease (COVID-19) pandemic during the blockade in Berlin, Germany on January 20, 2021. REUTERS/Fabrizio Bensch/Files
By Caroline Cohen
LONDON (Reuters)-After working from home for more than a year, real estate investors are betting that demand for office space in Europe will rise as the COVID-19 vaccination rolls out and people return to work.
According to data from real estate broker Jones Lang LaSalle, global office real estate leases in the first quarter fell by 31% compared to the same period last year, despite the fact that Europe is more resilient than the United States.
“The perception that the office is over is utter nonsense,” said Keith Breslauer, managing partner of European real estate investor Patron Capital.
“No smart money believes it.”
Breslauer developed three new office development opportunities in regional cities in the UK one day last month. “We are not alone,” he said.
The long-term impact of the pandemic on work patterns is unclear.
HSBC plans to almost halve its global real estate, and consulting firm Deloitte has told its British employees that they can work anywhere. Bank of America such as Goldman Sachs (NYSE:) and JPMorgan Chase (NYSE:) have ordered employees to return to their offices.
“Some will expand, some will shrink, and some will not change at all,” said James Corl, head of the private real estate group at Cohen & Steers (NYSE:), a US investment management company.
“The economic downturn always provides the best investment opportunities.”
Cole said the increase in mixed work—working in the office a few days a week and at home the rest of the time—is offset by the need for more office space per person in an era of social alienation.
Investors say that although the company may need a 20-30% reduction in space, the shortage of supply before the pandemic is also supporting prices.
Simon Martindale, director of funds at Mayfair Capital, said the real estate manager is arranging a large regional office for a “big company” seeking additional space to rent out in the UK.
Analysts and brokers say that the pandemic’s impact on large European companies is smaller than initially expected — thanks to strong government support — and most companies continue to pay rent.
Matthew McAuley, head of global research at Jones Lang LaSalle, said that US centers such as San Francisco and New York are not as resilient—perhaps because venture capital and private equity tenants are not as capable of accepting new leases as multinational companies.
Brokers said that due to the pandemic, investment transactions have dropped sharply. But according to data from Real Capital Analytics, where the transaction occurred, the price of office buildings in the European Central Business District increased by 13% in 2021 compared to 2020, while comparable transaction prices in the United States have declined.
Industry sources said that US real estate investors are increasingly interested in Europe.
Real estate agent Savills recently stated: “Many overseas investors (willingly) go to London for quarantine to inspect and bid for buildings.”
Kennedy Wilson, who was listed in New York last week, purchased an office building near the US Embassy in London for US$252 million, higher than the reported price of approximately US$222 million for the building to cease sales in 2019.
Location
Real estate investor Madison President Ronald Dickerman (Ronald Dickerman) said that for the United Kingdom, the “double storm cloud” of Brexit and COVID-19 is dissipating: “We are very, very optimistic about the recovery of the United Kingdom and London. ”
Madison, an investor in Capital & Counties, owner of London’s Covent Garden shopping district, bought a minority stake in the 37-storey Salesforce (NYSE:) Tower in London’s financial district last month.
RE Capital plans to invest up to 150 million pounds (208 million US dollars) in an office in central London this year. Last year, it purchased a building in Westminster near the British Parliament.
Simon Banks, head of real estate at RE Capital in the UK, said: “When you look at the deliverable supply in the next few years, it is very limited,” adding that “location is becoming more and more important.”
For example, employees may prefer to be close to the main train station because they are cautious about buses or subways.
David Greenbaum, chief financial officer of CPI, a Chinese-European real estate company, said that the pandemic has not changed its attitude towards offices, which account for more than 50% of its portfolio.
He said that employees who were keen to work from home last spring are now missing training and cooperation opportunities, and their desire to work from home may be diminished. “The pendulum is always swinging.”
He added that vacancy rates in cities such as Berlin are still very low, supporting the market.
According to data from CB Richard Ellis, the rents of prime office buildings in Berlin rose by about 2% compared to a year ago in the first quarter, Paris rose by more than 5%, while the West End of London remained stable. In downtown New York, rents have fallen by more than 5% due to more vacant space.
Warehouse problem
As logistics—warehouses—begin to become expensive, investor interest in offices is increasing.
“The return on the logistics industry has dropped by 300 basis points in five years, from 7-9% to 4-6%. It is difficult to make money in this area,” said Breslauer of Patron Capital.
According to sources, logistics companies are struggling to solve the cost of last mile delivery. These trends are encouraging, such as the pick-up points of Amazon (NASDAQ:) fresh food stores and fast delivery centers with smaller cities. Delivery of groceries service.
These changes and the return to normal shopping may limit the industry.
UBS European real estate analyst Zachary Gauge said: “There is too much money chasing an asset class.”
“I think there is a problem with logistics.”
(1 USD = 0.7224 pounds)
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