Markets OverviewKey Themes Spain
The residential sector in the Spanish market has recently become quite active. There has been an increase in demand for both owning and letting, which is being driven by increasing rents in larger cities. Housing prices and rents are set to increase (even if gradually) in the future.
Offices and retail spaces are leading the commercial sector. Office properties in good locations are in high demand, while retail spaces are trying to combat the rising dominance of e-commerce as increasing footfall in physical stores still remains a challenge.
Owing to the increasing dominance of e-commerce, logistics hubs in strategic locations are witnessing a lot of activity. Take-up in this sector has gone up significantly (~70% y-o-y) when compared to the last year.
High street retail markets in Madrid and Barcelona saw a high number of letting transactions, while vacancy rates remained stable. Rents are gradually increasing in prime areas. However, investments in this segment remained low due to a shortage of supply.Netherlands
As the Netherlands economy enjoys sustained growth, Amsterdam has become one of the most dynamic business centres in Europe. This has contributed to a dramatic decrease in vacancies to 8 per cent after years of double-digit vacancy rates. Increase in rents have climbed to 3.2% a year, up from 2.5% in 2013-17.
60%-70% of investments in the real estate market is now done by local investors
Investments in operating assets like hotel, student accommodation and healthcare have been increasing at a rapid rate. The growth in the hotel sector has been mainly due to the increase in tourism. The student housing market has been developing strongly and has become a mature investment alternativeGermany
With a transaction volume of €41.7 billion till the end of Q3 2018, the German real estate markets are on track to achieve a double-digit growth this year.
Office properties, traditionally a strong asset class, have seen yields dwindle recently because of a dearth of core assets.
Frankfurt had the largest yield compression, with prime office yields falling by 75bps to 3.25%. In Munich and Berlin, prime office yields are at 3.00% and 3.10% as of H1 2018.
As investors take on riskier propositions in order to achieve target returns, a positive appetite for the Residential sector has emerged, which is up 38% year on year in the first three quarters.
The past year has seen Germany accounting for nearly 40% of the total residential volume in Europe, with five of its cities – Berlin, Hamburg, Düsseldorf, Dresden and Munich – featuring in the top 20 on the continent.Denmark
Despite a surge in international transaction activity in the Danish market for commercial and investment property, the 2018 transaction volume is not expected to exceed the 2017 volume of €11bn owing to the scepticism of domestic institutional investors.
The lack of activity is most pronounced in the Residential space, where prices have risen by 5% to 10% annually in the past few years and hit a ceiling, deterring buyers to make new acquisitions.
The weakness in the Residential sector has prompted many investors to turn their focus to the flourishing Office sector, where vacancy rates have dropped below 6% for the first time since the financial crisis of 2008-09.
Similarly, there has been a sharp increase in demand for Logistics assets on the back of a bright economic outlook and thriving e-commerce. In fact, prime yields for logistics properties in Copenhagen, at 5.75%, offer greater rental upside than prime offices, which have a yield hovering around the 4.00% mark.
Focus of the MonthBrexit impact on UK Real Estate
The UK is set to leave the EU in March 2019, as a result of the referendum that took place in June 2016. The forthcoming departure of the UK from the EU, presents an unprecedented set of challenges and changes. There is a huge slowdown in UK’s GDP growth rate, dropping to nearly half of what it was just before the Brexit. However, the net business investments have increased by 8.65% in Q2 2018, as compared to Q2 2016 (as per the data by Office for National Statistics).
Despite the uncertainty surrounding Brexit, the UK property market continues to remain competitive. However, there has been a change in the investment pattern. The broad post-vote investment pattern showed a sharp decline in the UK institutional investment and a simultaneous sharp increase in foreign investment, driven by a weak sterling. In less than 6 months after the referendum, volumes began to recover and a counter-cyclical peak was achieved by Q3 2017. Thereafter, in Q2 2018, volumes were down by only 3.5% compared to Q2 2017 and the property investment volumes have been strong (£27bn+).The impact of Brexit on different asset classes Office Markets
The regional office leasing demand has been resilient across the UK despite Brexit. Although the take-up fell in 2016 when compared to 2015, in 2017 it rose by more than 10% with several markets reporting record take-up levels. In 2018, the occupancy levels have sustained with an increase of less than 1%.
In London the demand recovered in 2017 as compared to the nearly four-year low take-up in 2016. The slowdown, especially in the city, was consistent with general business sentiment of ‘wait and watch’. The recovery in 2017 reflected a wide diversity of demand, including North American and European occupiers whose take-up in 2017 exceeded their respective ten-year averages by two and three times, respectively. Take-up of office space across Central London showed a 14% rise in Q1 2018 compared to Q1 2017.Industrial Markets
Industrial occupier markets showed very limited signs of slowdown. The industrial take-ups in 2016 showed a 2% increase as compared to 2015 and the demand continued to be strong in 2017 and 2018
The industrial sector has also seen high rates of rental growth. In the two years to the end of Q2 2018, rental growth has averaged 4.8% per annum compared to an average annualised rate of 1.1% over the last 18 years. This reflects the impact of structural change within the industry, especially the impact of internet trading.
Investment volume in the industrial market was strong in 2017 and continue to be strong in 2018, with nearly £4.3 billion transacted in the first nine months of the year (£1.4 billion in Q3), just above the five-year average of £4.2 billion. Investors continue to look for opportunities in what is an increasingly competitive market.Retail Markets
The retail sector has been on the downward slide ever since 2008, due to changes in consumption patterns, technology and an unfortunate cocktail of inflexible tax and regulatory controls. After Brexit, the retail sector has been impacted the most. The biggest reason for this was the consequent devaluation of sterling after the Brexit. Whatever slim profit margins may have been on offer, are being wiped out by the increased input costs, projected short supply of labour and the increasing difference between inflation and wage growth leading to a decreasing household disposable income.
Investment volumes weakened markedly in 2017, highlighting that investment appetite for shopping centres has waned considerably. No deals worth more than £200mn were recorded in 2017 compared to four large deals in 2016, followed by very few deals in 2018.Residential Markets
As the time for the real departure from EU is nearing, property surveyors have indicated a slowdown in residential buying. The October 2018 RICS UK Residential Market Survey results showed recent softening in new buyer demand.
As per data published by the UK House Price Index, UK house prices rose by 3.2% in the year to August 2018, down from 3.4% in the year to July 2018. UK House prices have shown different trends in London and in the Regions. While house prices grew fastest in the East Midlands region increasing by 6.5% in the year to August 2018, followed by the West Midlands region which increased by 5.1% over the year, house prices in London fell by 0.2% in the year to August 2018. Annual growth in London house prices has been stagnant for the last 6 months.Rise of Frankfurt as a Financial Centre
London has flourished as a financial centre and has been the biggest financial centre since time immemorial. But ever since Brexit came into the picture, London has lost its position to New York. Frankfurt, the future financial capital of Europe, now ranks 10th up from its 20th position earlier, in the Global Financial Centre Index. This change of ranking is expected to sustain and is backed by the expected movement of nearly 80 global financial companies to Frankfurt from London in due time.
If companies seriously consider relocation to mainland Europe from UK, this will have an impact on demand for space, especially in established locations. In one scenario outlined by a major Real Estate services organisation, a 2% re-allocation of employees from London to Frankfurt, would lead to an 11% increase of financial employees in Frankfurt, and a subsequent decline in the central business district vacancy to 20%. According to a survey by the Royal Institute of Chartered Surveyors (RICS), real estate experts foresee a rise of 3.5% in both rents and capital appreciation of German commercial property in the coming three years.
Funds in the MarketRecent Fund Activity
Real estate debt funds continue to gain strength in 2018, with the senior debt strategy remaining popular among investors in line with the trends in 2017 and 2016. Non-listed Europe property debt vehicles increased by 13.5% in the past 12 months.
Canada Pension Plan Investment Board and QuadReal along with GLP, a Singapore based logistics company, are establishing €2bn European logistics fund.
|Strategy||Institution||Regional Focus||Asset Focus||Status||Fund Size (mn)|
|Whole Loan Fund||DRC Capital||UK||Commercial Real Estate||Final Close||€ 788|
|Value-Add||SilkRoad Property||Asia||Commercial Real Estate||Final Close||$ 377|
|Co-investment||Almanac Realty Investors||United States||Commercial Real Estate||Final Close||$ 2000|
|Senior Debt||Oaktree Capital Group||United States||Commercial Real Estate||Final Close||$ 2100|
Recent TransactionsSnapshot of Key Deals Direct Acquisition
|Asset Name||Buyer||Seller||Asset Type||Location||Price (mn)|
|Trianon building||IGIS AM, Hana Fin. Investment||NorthStar Realty Europe Corp||Mixed-use||Frankfurt||€ 670|
|CUBE||OM France, Mata Capital||BNP Paribas REIM||Retail||Pan-France||€ 125|
|111 Strand||Cording||DTZ Investors||Offices||London||£ 46|
|Hotel Villa Magna||RLH Properties||Dogus Group||Hotel||Madrid||€ 210|
|Hayhill Portfolio||Elite Partners Capital||Telereal Trillium||Commercial properties||Pan-United Kingdom||£ 282|
|Office Portfolio||Etarnam||KKR||Offices||Pan-France||€ 100|
|CTPark Prague North||Deka||CTP Group||Logistics||Czech Republic||€ 460|
|Luna Arena||LaSalle||Ping Properties||Offices||Amsterdam||€ 56|
|Asset Name||Lender||Borrower||Asset Type||Location||Loan Amount (mn)|
|Residential Homes||Bond investors||Karbon Homes||Residential||North East And Yorkshire||€ 282|
|Buspace Studios, Ladbroke Grove||Investec Structured Property Finance||Warrior Property Group||Mixed||London||Undisclosed|
|12 Logistics Assets||MetLife Investment Management||Valor Real Estate Partners||Logistics||Manchester, Dartford, Thurrock and Crawley||€ 56|
|Zalando Campus||MünchenerHyp||Hines Immobilien||Office||Berlin||€ 143|
|European hotel||Aareal Bank||Pandox||Hotel||Pan-Europe||€ 447|
|Logistics park||pbb Deutsche Pfandbriefbank||Hines Global Income Trust||Logistics||Netherlands||€ 75|
|'Stream' office||Berlin Hyp||Signa||Office||Berlin||€ 220|
|The Pavilion||UniCredit||COIMA RES||Mixed||Milan||€ 32|
|MSCI World Real Estate||204.8||(3.5%)||0.5%||11.7%||7.9%|
|STOXX Global 1800 Real Estate||254.2||(3.1%)||0.8%||11.3%||7.9%|
|STOXX Europe 600 Real Estate||166.5||(7.9%)||4.5%||(10.0%)||39.8%|
|Dow Jones US Real Estate||323||0.4%||(0.7%)||10.3%||19.9%|
|STOXX APAC 600 Real Estate||234.3||(6.8%)||1.7%||17.1%||(10.9%)|
|Property REITS - Europe||30-11-2018||YTD||1-YEAR||3-YEAR||5-YEAR|
|Office & Industrial||254.2||(3.1%)||0.8%||11.3%||7.9%|
|Property REITS - US||30-11-2018||YTD||1-YEAR||3-YEAR||5-YEAR|
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material is not financial research and was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Oxane Partners has no obligation to provide any updates.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. The information contained in this presentation is not intended to be used as a general guide to investing, or as a source of any specific investment recommendation.Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Oxane Partners to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.Sources: PERE, Real Estate Capital, Gulf News, South China Morning Post, Savills, Knight Frank, Deloitte, JLL, Institutional Real Estate, Bloomberg, propertyfundsworld, Colliers International, PwC