M&A value among real estate firms quadrupled year-on-year in H1, after a tough 2020

Real estate was particularly hard hit by lockdowns, with many real estate operators carrying significant holdings of hotels, shopping malls and office space in their portfolios. With nonessential shops forced to shutter and employees instructed to work from home, many portfolios were in distress. McKinsey estimated that real estate asset values fell by an average of 25 percent immediately following lockdowns, while a number of US property funds had to limit distributions and redemptions to survive pandemic uncertainty.

But the sector has shown positive signs of recovery as the economy has stabilized, vaccines have been rolled out and shops, restaurants and hotels have been able to reopen. The Dow Jones US Real Estate Index, which lost more than 40 percent of its value within a month in Q1 2020, is back in the black and showing gains of more than 20 percent for the year to date.

As real estate stocks have recovered, confidence has returned for real estate M&A dealmakers. Real estate deal value climbed almost fourfold year-on-year, coming in at US$44.2 billion from 18 deals (up from 16 transactions in H1 2020).

US$44.2 billion

The value of 18 transactions in the US real estate sector in H1 2021

A variety of drivers have supported the deal uptick. A year on from the first lockdowns, real estate dealmakers have been able to identify the most resilient real estate sub-sectors and quantify the impact on the sub-sectors most impacted by the pandemic.

The largest deal of the sector is something of a turnaround story. Realty Income Corporation and VEREIT, both of which own portfolios of commercial real estate, each saw their share price crash in spring 2020 as a result of lockdown measures. Share prices have since recovered, allowing the two parties to proceed with the US$17 billion merger.

521%

Percentage increase in deal value compared to H1 2020

Pivot to delivery and data

Assets in industrial real estate and data centers have performed strongly, a consequence of the mass shift to online shopping and remote working.

According to real estate investor and advisory firm CBRE, developers increased warehouse capacity by 9.5 percent in 2020 to address rising demand. Asking rents for warehouses are up 8.3 percent year-on-year. The US data center market, meanwhile, is expected to expand by 13.8 percent in 2021.

A clear example is the second largest real estate deal of H1, which saw Blackstone buy QTS Realty Trust, an operator of multi-tenant data centers, for US$8 billion.

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