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Real Estate M&A booms in H1 – but which assets will stay the course in uncertain market conditions?

Global M&A may have lost its fizz in the first half of the year, but real estate deals were back with a bang after a slowdown during the pandemic.

Our data shows that the value of global real estate M&A deals hit USD236 billion across 1,642 transactions in the first half of the year – the best start to the year in over a decade - and real estate transactions accounted for over 10% of all global deals by value in the first half of the year. However rising inflation, interest rates and supply chain issues are likely to take the heat off the market in the second half of the year.

The strong start to 2022 was fuelled by a return of confidence to the sector, as well as investors capitalising on changes to the way we work, live and play that were accelerated by the pandemic.  

The bounce back in the real estate sector was in sharp contrast to the overall M&A market, which saw a 21% decline in deal value compared to the record-breaking first half of 2021.

Optimism returns in global property investments

The pandemic caused real estate mergers and acquisitions to all but grind to a halt in 2020, as investors assessed the damage that stay at home orders wreaked on the global property market. Pent up demand and growing confidence in the sector helped fuel a market rebound in 2021. But the first half of 2022 saw a renewed optimism in global property, with a flurry of interest in assets benefitting from long-predicted changes to consumer behaviour that were supercharged by the pandemic, such as a shift to online retail, growth of cloud services and popularity of staycations.

Changes to work, life and play

This was particularly evident in the stand out transaction of the first half: Blackstone’s EUR21bn recapitalisation of European last mile logistics business, Mileway. Warehouses and logistics centres have become hot assets over the past two years, as the pandemic forced shoppers to stay home and boosted online spending. This has increased demand for logistics centres that deal with the final leg of a product’s journey from the warehouse to the customer’s door.

We view the Mileway deal, which is one of the largest private real estate transactions, as a vote of confidence in the sector as Blackstone maintained its investment in the asset, rather than selling the Amsterdam-based platform. In the U.S., we have seen increasing demand for logistics assets, with Singaporean investor Mapletree Investments snapping up two portfolios of logistics assets worth USD3bn across the country in 2021. While in China there has been a wave of consolidation of third party logistics players, as companies look to gain scale and drive down costs in this rapidly expanding sector.

Data centres

There has been continued interest in data centre investments, which has also been the case for infrastructure investors. The pandemic caused a boom in home working, forcing many businesses to move their operations to the cloud for the first time, increasing demand for space at data centres. Predicted increases in gaming, video and e-payments in the next few years are also making data centres look like a safe bet and pushing up interest these real assets. In March 2022, KKR and Global Infrastructure Partners completed their acquisition of data centre operator of CyrusOne for USD15bn.

New entrants to the sub-sector should note that the type of data centre as well as the counterparties involved will largely drive the commercial and contractual strategies for data centre development but there are a number of common themes that real estate investors typically consider. These include electricity and power supply, connection, regulatory and permitting issues (such as ESG, see below, and the impact of the Foreign Direct Investment Regulations), data protection, contracting and asset-specific features of data centre financing.

Life sciences

We have also seen growing demand for life sciences facilities across the globe, with the pandemic underscoring the importance of these critical research facilities. This has been particularly evident in China, where the government has been pumping billions into developing a domestic life sciences research and development industry over the past three years. Confidence in the sector was underscored by Warburg Pincus-backed DNE Group’s announcement in April that it was forming a USD1.2bn joint venture to acquire and develop the life science parks in top-tier Chinese cities.

Environmental, Social and Governance (ESG)

Clients are also increasingly interested in assets that have a strong wellness and sustainability angle as tenants look to improve their ESG standing and lure staff back to the office. In New York, the One Vanderbilt and Hudson Yards developments have wooed tenants with air filtration systems, outside space and lower carbon emissions relative to their size than rival buildings. In China, government policies to reduce carbon emissions have also encouraged investors to pour money into greener office buildings. This has allowed such buildings to command premium rents and make them more attractive M&A targets. But ESG terms in leases remain a point of negotiation, with landlords and tenants needing to strike the right balance between improving ESG credentials and avoiding overly onerous data collection.


When it comes to leisure, holiday parks have also proved attractive take-over opportunities. In the UK, Covid-19 travel restrictions led to a boom in ‘staycations’, and this year we saw investors respond with a wave of acquisitions in the domestic holiday park market. Over the past 18 months, Bourne Leisure, Park Holidays and Away Resorts have all been the subject of private equity transactions.

Students and seniors

We have also seen continued interest in care homes, senior living facilities and student accommodation, with investors keen to capitalise on an ageing population and rising student numbers across the globe.

Why have these areas seen such interest in recent years? Worldwide investment in student accommodation has doubled over the past several years, with investment in student housing typically being driven by the pursuit of stable cashflows due to the lease terms in line with the annual university periods. Various commercial drivers may be considered by investors.

On the other hand care home leases offer stable long term rent returns for investors because, unlike the increasingly short terms for retail and office leases, care homes across Europe still typically have lease terms of over 20 years. However, some operators may come under strain in the current high-inflationary environment as rent reviews in care home leases are typically index-linked.

Alternative lenders offer innovative structures

The first half of the year also saw a growth in financing provided by non-bank lenders.

Banks become more risk averse on real estate lending during the pandemic, amid concerns over retail and office occupancy rates. But private debt funds, which raised a near record USD39.5bn for real estate deals last year, have stepped into the gap.

Non-bank lenders tend to have a slightly higher risk appetite and offer more innovative debt packages than traditional banks, with mezzanine and preferred equity arrangements now relatively commonplace. Expected rises in interest rates in the next few years are also making the type of longer term, fixed-rate debt that alternative lenders can provide increasingly attractive to borrowers. All of this has made debt funds a useful source of capital for assets that have sustained a short-term hit by the pandemic, but they should be viable bets in the long term.

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