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Real Estate

Has the Retail Sugar Hit Passed?

November 2021 - 8 min read

In the third quarter, European real estate investment broadly recovered to pre-pandemic levels. The Barings Real Estate team weighs in.

Economy

  • High-frequency business surveys softened, with supply side issues now impacting activity. 
  • Persistent bottlenecks and rising energy prices have driven stronger-than-expected inflation, but we think these pressures should subside. 
  • While the risk of an early QE reverse manoeuver has risen, Oxford Economics maintains their expectation that policy rates will remain on hold through to 2025.
     

Property Markets

  • Commercial property investment volumes appear to have recovered to pre-pandemic levels. 
  • Residential and logistics volumes have increased, but offices remain the most-traded sector. 
  • Prime yield trends are following the longer-term structural drivers: yields on industrials and e-commerce resilient supermarkets have compressed; prime office yields edged slightly lower in some locations; and most retail yields continued to unwind. 
  • Office vacancy increases are slowing and lettings activity is now beginning to revive. 
  • While prime retail rents are showing signs of stabilizing, structural headwinds remain.
  • Industrial occupier markets continue to break records.
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