A well-diversified audience was targeted, of which the largest group of respondents were Asset/Investment Managers (45%) followed by Investment Funds (31%), Private Investors (including Family offices) (14%) and Developers (10%).
CHART: In which asset classes are you investing in Belgium?
Industry leaders remain positive and active
One of the main conclusions from this survey is that most investors have kept a positive outlook and are still actively looking for new opportunities in the market. Industry players kept busy during the lockdown and have taken advantage of the situation to focus on market analysis and research to prepare for upcoming opportunities.
The results show that there is still ample equity available in the commercial real estate market with a majority of investors still looking to deploy up to € 100 million of equity in Belgium this year (all asset classes combined). While most Real Estate Investment Funds responded that equity raising has not slowed down, ca. 20% of investors did confirm that this process is currently on hold. There is still a lot of demand for new investments however the liquidity in the market is clearly impacted and results in a lack of opportunities.
With equity ready to be deployed, another challenge today is financing. The changing lending landscape is one of the main factors creating uncertainty in today’s market. Our survey shows that 89% of respondents are being confronted with less favourable financing conditions. This is mainly due to lenders being more selective in terms of asset classes and a building’s investment profile (core vs value-add) but also because a higher proportion of equity is required.
CHART: Do you believe debt financing conditions today are?
Additionally, 65% of respondents reported increased financing costs. As this directly impacts the targeted returns of investors, it could lead to a (limited) impact on pricing levels. It is therefore not surprising that most respondents (68%) believe that prime yields in Belgium will see a slight decompression, even though a healthy 31% believes this to be for the short term and see yields stabilising in the near future.
No imminent change of strategy for most investors
Ca. 57% of respondents are not planning any changes in their investment strategy but have reported to be more critical when analysing new opportunities. Those that are looking to alter their strategy are focusing mostly on an increased diversification between asset classes. The demand for office investments remains stable but demand for logistics and residentials continues to surge. Adversely there is more caution towards the retail and hospitality sector, due to the existing uncertainty and economic impact as a result of COVID-19.
CHART: In terms of strategy, what have you considered?
The survey also suggests that only a minority are considering adapting their strategy with respect to geographical location (15%) or altering their investment profiles (14%).
The respondents considering modifying their investment strategy based on geographical location show an increasing interest towards regional or secondary cities. Antwerp and Ghent, for example, show great potential as more than 50% of investors consider allocating more capital towards these markets.
In Brussels the trend is different. Investors who are currently active outside of the CBD have mixed opinions. Half of the investors are looking to keep the same exposure while the other half is looking to reduce their presence. This difference in strategy could lead to upcoming opportunities for both sides. For the Brussels CBD however, most respondents aim to further increase their exposure and stick to their core strategy.
All things considered, most investors aim to maintain their 2020 (pre- COVID-19) objectives. This is especially the case for sales objectives where more than 80% do not consider changing their target. While objectives remain the same, the timing could be delayed towards the end of the year or when activity picks up.
When it comes to the timing of recovery, there is no clear answer. Signals are mixed with 55% of respondents believing that the commercial real estate market will not return to a full level of activity before 2021. Around 26% are slightly more optimistic suggesting the investment market could get back to the average activity within 6 months.
Sentiment on the leasing market is more divided
The respondents’ sentiment on the recovery of the leasing market is somewhat more divided and changes from sector to sector. The Semi-Industrial and Logistics sector is expected to see a speedy recovery with letting activity getting back to normal between 3 to 6 months (80% of respondents). According to the industry professionals, the office sector is expected to experience a slower recovery with optimistic respondents suggesting the leasing market to recover in 6 months (32%) while the majority (40%) believes this will not happen before 2021. Similar responses are seen for the retail sector, which is slightly more under pressure.
Prime rents in general are expected to remain stable for Office and Semi-Industrial / Logistics sectors, (77% and 83% of respondents). The sentiment in the retail market is somewhat different as respondents believe that retail rents will decrease.
CHART: What is your perception of rental values before the end of the year for Belgium?
As a conclusion we remain positive and see a market where there are still opportunities, as well as willing buyers and sellers. COVID-19 has impacted the Belgian real estate market however the market is not at a complete standstill. Cushman & Wakefield expect activity to gradually pick and build up towards the year-end, in line with investor sentiment.