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European Real Estate Research Quarterly

November 2020 - 8 min read

While COVID has negatively impacted the retail and hotel sectors, the logistics and residential sectors have been much less affected. The Barings Real Estate team weighs in on the opportunity set—and why the overall outlook remains positive.

Economy

  • While Q3 GDP rapidly rebounded, rising infections mean restrictions on activity are tightening again, pushing the economic recovery backward. 
  • Despite ultra-accommodative monetary and fiscal policy responses, the strength of COVID’s impact on demand means prices and thus interest rate expectations should remain anchored for the foreseeable future. 
  • The IMF are now encouraging governments, which have access to capital markets, to ramp up public spending and support to limit permanent economic scarring.
     

Property Markets

  • COVID has cyclically weakened all of the major real estate sectors but to varying degrees. Retail and hotels are most negatively impacted, whereas the logistics and residential sectors, where longer-term structural trends are more supportive, have been much less affected. 
  • Low rates are a huge support for core pricing, but only where the structural drivers (demographics and technology) are favorable. 
  • Investor and lender uncertainty is currently greatest around the outlook for offices. Reduced corporate office footprints look likely, but an occupier flight to quality will occur during the recovery—initially driven by fears and health and safety concerns, then to maximize productivity benefits, of the already in chronic short supply, top quality offices. This will be a significant opportunity for value add investors.
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