Key findings include:

• Yields remaining static: overall, most Savills research heads expect prime yields to remain static over the 12 months to Q2 2022, but the exceptions are the industrial and residential sectors, where more expect yields to move in than to remain static or rise, reflecting increased investor interest in these sectors. Offices are set to be largely resilient, with 97% of Savills researchers anticipating yields to remain static or fall.
• Office leasing should return to pre-pandemic levels by 2022 – but there are variations: emerging markets such as China, Indonesia and Vietnam are the most bullish on leasing activity. Tech occupiers are expected to lead demand across the board, with 79% of Savills researchers anticipating higher leasing activity in their markets than in 2019.
• Offices are expected to be 2022’s dominant asset class: in Shenzhen, Beijing, Guangzhou and Seoul, 60% of all investment is expected to flow into this sector. Logistics and residential are the next top picks as investors pivot to ‘beds and sheds’ strategies, with investors in North America in particular expected to favour residential, the world’s biggest market for investable product in this space. In 2022, international capital is expected to surge into the real estate investment markets: Savills research heads expect, on average, 47% of all investment to come from international investors (of which just under half from neighbouring counties) and 53% from domestic sources.
• 75% of Savills research heads indicated that sustainability is an important part of investors’ strategies. However, researchers in several major cities in Asia-Pacific said it is not yet deemed important by buyers, including Hong Kong, Tokyo, Jakarta, and Seoul. Savills says that this is likely to change soon, given the global focus on the ESG agenda. In terms of the motivation behind embracing a sustainability-led investment strategy, a majority of Savills researchers (54%) believe that company reputation is the strongest driving factor, while 46% indicated the opportunity to increase returns was also a significant motivator.

Simon Hope, Head of Savills Global Capital Markets, comments: “Based on G7 assumptions, 2022 should herald a return to business as usual for real estate markets around the world. According to our researchers, it appears that normality should return to the office sector too, both in terms of leasing - where tech occupiers are predicted to be particularly active - and investment activity, with yields potentially hardening in some areas. In the residential and industrial fields, both of which have benefitted from lockdowns, we see continuous prosperity for investors. With the vaccine rollout and the assumption that business travel resumes, this is likely to lead to more international demand, which, when combined with existing domestic demand, is expected to result in a further strengthening in pricing and capital values. Assuming the bond market remains resilient we anticipate demand and pricing in the sustainable sectors to improve. Based on high levels of Government expenditure on capital projects, from the USA to Europe, this could be a strong decade for investment.”

Sophie Chick, Director in Savills World Research team, adds: “It’s interesting that, in the opinion of our researchers, the reputational threat seems to be a higher motivating factor than seeking higher returns in pursuing an ESG-led investment strategy. Although some studies show that assets with high ESG credentials deliver higher rents and therefore better income returns, it’s still hard to separate out how much sustainability plays a factor here and how much is due to these often simply being the newest and best assets in their markets. This highlights the challenges for the industry in assessing the ‘green premium’. Nonetheless, the fact the vast majority believe that sustainable investment is here to stay is a good thing, and in those locations where it’s not currently top of the agenda, it’s inevitably only a matter of time.”

Fraser Watson, Director in Savills CZ&SK Investment Advisory, comments on the outlook: “It is encouraging to see how much positive outlook there is for 2022, which certainly reiterates what we are seeing and feeling within the Czech and Slovak markets. The uncertainty of the last 15 months is definitely lifting and we see investors in the market moving forwards with determination to get equity allocated. The ESG piece is becoming more important and it’s gone from being an outlier in the rank of criteria for investors to one of the first questions asked. How this plays out in terms of pricing is really yet to be seen; however, it's probable that the most ESG compliant properties will benefit from a (slight) premium, rather than properties that aren’t as ESG friendly being discounted. The office sector is gaining momentum and certainty as occupiers get clarity on how their requirements look like going forwards. The ‘return to the office’ of employees is well underway and this is giving investors comfort in the underlying fundamentals and longevity of the sector.”