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The investor enthusiasm that has driven the rebound in global stock markets has also benefited the European listed real estate (LRE) market. The recovery in LRE has to date broadly tracked the recovery pathway of the Eurozone crisis while being more rapid than the GFC – the Developed Europe LRE Index was around 1% above its pre-pandemic peak by end-August 2021.
There has been considerable variation in LRE performance across sectors, geographies and quality of properties. Traditional sectors such as office, retail and lodging/resorts have been especially hard-hit. Whereas residential property and other commercial real estate sectors that support the digital economy, including warehousing and data centres, have enjoyed a surge in demand. The pandemic has accelerated a number of structural trends that were already evident prior to the crisis and these themes are expected to continue driving strong returns after the pandemic.
Private sector credit growth is now moderating and economic growth is anticipated to past its peak. This is typical of a mid-cycle environment, but does suggest that returns are likely to be more modest in the coming months, alongside increased volatility in equity markets and with risks tilted more towards the downside. LRE prices might face a period of consolidation over the next few months, but there should be room for renewed upward momentum from H2 2022.
