Cross-border investment into European real-estate is set to hit a record high this year, according to estimates by property consultancy Knight Frank, driven by capital flows from North America and a rebound in the office segment as the pandemic subsides. 

The consultancy expects all property sub-sectors across Europe to attract more international investment than last year, and for the region as a whole to capture 62% of the sector’s global cross-border deal flow.

“We think 2022 will be a record year in terms of investment volumes [into Europe],” said Mike Bowden, partner and co-head of European capital markets at Knight Frank. “There is a lot of money coming into logistics and residential. After two years of constrained volumes in the office sector, we started to see that return at the end of 2021 and anticipate it to come back even more strongly this year.” 

Some 51% of inbound investment is expected to flow into offices, followed by residential at 15%, and logistics and retail both capturing 13%. The top target destinations are tipped to be the UK, Germany France, The Netherlands, Spain and Poland. 

Back to work

Knight Frank expects UK offices to draw more investor interest in 2022 than any other property segment globally. “With Brexit further behind us, I think people are much more confident investing into the UK, and particularly London offices,” said Mr Bowden.

The prevalence of hybrid and home working in the wake of Covid-19 had prompted fears over the death of the office. But according to Mr Bowden, the latter-end of the pandemic has shown that workplaces still play a vital role in corporate activity, albeit with a bigger focus on collaborative work that cannot be replicated virtually. 

“While there are examples of corporates downscaling or not requesting the same amount of space, there are also plenty of examples of businesses keeping or looking to increase their space,” he said. “Across Europe, the demand for office space is returning and there is a lot more confidence in [office leasing] markets, which is helping to drive investor interest.”

In January, Google announced it was buying Central Saint Giles, one of its main office buildings in central London, for $1bn. That same month US investment bank Citi said it will refurbish its Canary Wharf offices — including by installing collaboration and wellbeing spaces — in an investment reportedly worth £100m. 

Transatlantic tide

Logistics is the other sub-sector to watch, driven by Covid-19’s acceleration of e-commerce and online shopping. Data tracked by Knight Frank shows that cross-border logistics investment in Europe hit a record high in 2021, with annual volumes up 89% on the five-year pre-pandemic average. The consultancy expects 2022 to top those volumes again, with US investors responsible for nearly two-thirds of deal flow.

This transatlantic trend is in line with Knight Frank’s broader finding that North America will account for 48% of all cross-border investment into European real-estate — a figure that includes country-to-country flows within Europe. Many US and Canadian real-estate investors already have large European exposures via existing assets or joint-ventures. The consultancy expects these could be the target of the large amounts of capital they have recently been raising.