Savills IM’s 2022 Sector outlook:
- We believe in the future of the office as the hub of company operations and that it will remain a major target sector for investors.
- Investors need to carefully consider pricing and potential future capex requirements, particularly for older buildings. Moreover, income streams are potentially less secure as tenants require more flexible lease terms.
- We have a preference for multi-let core/core plus office buildings near transport hubs in CBD locations and well-established city fringe locations in key markets across Europe.
- Industrial & logistics will remain one of the most preferred commercial real estate sectors in 2022. We expect to see another year of outperformance of investment volumes.
- With yields at historically low levels, generating income return through stock selection and active asset management to unlock rental growth are now the most important factors.
- Pricing is challenging, investors need to be careful about rental growth assumptions and obsolescence risks.
- We believe that urban and last mile logistics, light industrial estates and cold storage sub-sectors now offer investors diversification opportunities because they are benefiting from the long-term trend towards the faster movement of goods and supply constraints on urban land.
- We remain optimistic for the sector to rebound in the mid-term and continue to see buying opportunities in a selective manner in 2022.
- We believe that investors should consider strong income producing opportunities in value and convenience retail parks and retail warehouses in strong micro-locations, with stabilised lease-contracts and competitive covenant concepts (e.g. omnichannel sales formats).
- We also have a preference for daily goods and grocery retail formats – such as supermarkets and food discounters – as well as larger food anchored retail parks and neighbourhood centres in urban areas across Europe.
- We believe the sector offers both diversification and durable income streams, underpinned by demand and supply imbalances.
- ‘Living’ does not face the technological disruptions of commercial sectors and rent collection levels have remained robust.
- The sector is maturing rapidly, and this presents significant opportunity for investors across borders and the risk spectrum.
- We are most focused on the scalable and operationally light segments, namely multi-family and PBSA.
Debt investing continues to provide attractive risk-adjusted returns with downside protection due to the underlying income-producing asset.