LaSalle Mid-Year ISA: COVID-19 accelerates trends in European real estate

LONDON (August 07, 2020) — The COVID-19 crisis has created unprecedented dispersion in the performance of the different types of principal real estate assets, primarily by accelerating pre-existing trends affecting European property markets, according to the 2020 Mid-Year Investment Strategy Annual (“Mid-Year ISA”) published by LaSalle Investment Management (“LaSalle”), the global real estate investment manager. While global transaction volumes fell sharply in H1 2020, long-standing factors such as the rise of logistics, the decline of apparel retailers and the mainstreaming of alternative sectors continued to drive real estate investment flows in the first half of the year

LaSalle clients can view the full report at: 

The report's findings included:

  • Retail: COVID-19 has compounded structural challenges facing the sector, such as the growth of e-commerce and changing consumer behaviour. These trends were already most progressed in the UK and, from January to April, online retail sales grew 30% year on year, while total retail sales declined 23%, increasing the share of online retail spend, or e-commerce penetration rate, to a record 31%.[1]  Consequently, LaSalle expects average UK retail property value, having fallen c.12% since 2018, to drop by another 20-30% in 2020. Other European markets are following: German online retail sales increased by 24% in April against an overall decline of 6%, albeit with online penetration of only 12%.[2]  Nonetheless, non-discretionary, grocer-anchored, open-air shopping centres remain well-positioned.

  • Logistics: Conversely, the structural shift to online retail, magnified by the pandemic, is a driver of demand for European distribution and fulfilment centres. Across different markets, LaSalle predicts e-commerce penetration to increase by 5%-15% from pre-coronavirus levels. Logistics assets have also benefited from emergency supply chain reorganisation, onshoring and the trend of maintaining higher inventory levels. However, physical retailers account for approximately one third of demand for European logistics, a figure set to diminish. There also remains an oversupply of motorway logistics assets exposed to technological advances such as autonomous vehicles and 3D printing.

  • Office: European office markets have been subject to the only pronounced reversal of a pre-existing trend, with patterns of migration towards large cities and rising population density receding during, and probably after, the pandemic. Financial, professional services and technology companies’ ability to work remotely has sustained income streams, with rent collection rates of over 80% for class-A offices globally. [3]  However, a combination of a global recession and higher rates of work from home, threaten medium-term demand.  However, this should be partially mitigated by reduced workplace density; the long-standing undersupply of Europe’s largest office markets; and tenants seeking refurbished premises that enhance health and safety. Meanwhile, flexible offices have experienced short-term falls in cashflow but should benefit from increased demand in the longer term.

  • Residential and alternatives: Despite its relative immaturity from an institutional investor perspective, Europe’s residential property market has been the most resilient sector, with institutional-quality assets collecting more than 90% of rent globally.[4]  Residential properties have directly benefited from wage subsidy schemes and experienced increased short-term demand driven by lockdown-enforced illiquidity in house-buying markets. While the long-term robustness of their income streams will be tested through the impending economic contraction, index-linked ‘long-income’ assets have also proven highly resilient. The strong returns on offer from rental housing compared to investment-grade bonds, which are likely to continue record-low yields, have begun to attract interest from a wider array of investors. Within other alternatives, healthcare’s emergence as a mainstream sector has accelerated. Meanwhile, hotels and student accommodation have been adversely affected – with the latter facing a longer-term trade-off between its traditional countercyclical appeal during recession and the possible decline in overseas student numbers.


Jacques Gordon, Global Head of Research and Strategy at LaSalle Investment Management, said: “Despite the considerable uncertainty that has unfolded in the past six months, many of our previous strategic recommendations are holding true globally. We have consistently advocated increased exposure to logistics and advised that retail investments are concentrated in open-air assets, which have navigated the crisis better than enclosed malls. We believe that human capital will continue to thrive by returning to safe and secure offices throughout metropolitan areas, once work from home guidance is lifted.  Our approach of limiting exposure to co-working operators as tenants but building out a proprietary flexible office offering has proven to be sound advice. Persistent income streams throughout the crisis have demonstrated the resilience of many office assets class globally.  As economies reopen, there is an opportunity for investors to focus on the fundamentals and secular trends of demographics, technology and a more cautious approach to urban density.”

Simon Marx, Director of UK Research at LaSalle Investment Management, said: “The different risk-return characteristics of each property type come to the fore in a downturn and we have been encouraged by the resilience of our preferred strategies in Europe. Despite market illiquidity continuing to constrain deal flow, we see a range of sectors offering compelling investment opportunities, both in the UK and on the continent, in the latter half of the year. In the UK, long-income assets, such as ground leases and income strips, remain highly attractive relative to investment-grade bonds and offer a partial hedge to the risk of inflation in the medium term.” 

Petra Blazkova, Director of Continental European Research, said: “On the continent, urban logistics, residential assets and even office properties offering secure income in markets with strong occupier fundamentals can be a high-quality defensive or income-generating addition to a portfolio. Meanwhile, throughout Europe, real estate debt strategies such as whole loans, mezzanine debt, development finance and other special situations can provide exposure to attractive supply-demand dynamics across the risk-return spectrum.”

1 UK Office of National Statistics.
2 Eurostat and PMA.
3 Based on approximations for April and May rent collection, as summarized by NAREIT, EPRA, NCREIF and LaSalle’s portfolios.
4 Ibid.

About LaSalle Investment Management 
LaSalle Investment Management is one of the world's leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit and LinkedIn.

NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.

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