European Real Estate Snapshot

A monthly in-depth coverage of the latest developments in the European Real Estate market.


November 2018

Markets Overview

Key Themes Student Housing

Institutional investors such as insurance companies, pension funds and even sovereign wealth funds have recently become active in this segment. Student housing is a sub-segment of a larger niche market for ‘temporary living’, which typically refers to fully-furnished residential units smaller than 45 sqm.

There is a huge demand for ‘temporary living’ as this is a viable option for around 7million people in Germany. The buoyant demand in the investment market from institutional backers seeking alternative investments is likely to support this trend.

In the past year in the UK, there have been interesting developments in the funding structure in student accommodations. The direct-let market grew by around 8%, while DBFO (Design, Build, Finance and Operate) and income strip markets grew by around 6%. More than 18,000 new direct-let beds and approximately 3,200 schemes are being launched for the 2018-19 academic year as the student intake and interest in studying in the UK is growing.


As a result of sustained demand, vacancy rates in the UK have fallen to 3.3% with the average void period for speculative development at just six months. This is expected to fall a further 0.1% in 2019 as absorption outweighs deliveries.

Supply is barely keeping pace with the demand, especially for large units, with vacancy rates falling below 5% in Spain, the Netherlands, Poland and the Czech Republic. Investments in industrial and logistics have decreased by 21% in 2018 to €14 billion from the record highs of 2017.

The immense demand has manifested itself in significant yield compression across all sectors and has led to rising prices. Average yield fell by a substantial 14bps q-o-q and 42bps y-o-y which is the largest annualised reduction in the past nine quarters. There has been a yield compression of 240bps since 2009.

The industrial belt in Germany is losing its significance as two other major cities, Berlin and Hamburg, are gaining importance. This can be seen by the almost perfect occupancy in these two cities while the occupancy in the industrial belt is only around 90%.

At the end of the first half of 2018, the total modern warehouse space in Poland was 14.2 million sqm, representing a significant growth of approximately 42% over the last two years.


The transaction volume for retail property as a proportion of overall investment in commercial property has been on the decline since 2011. While retail property accounted for nearly half of the investment volume in 2011, this has decreased to almost 20% in 2018.

Building upon a record transaction volume in 2017, when retail parks overtook shopping centres for the first time, they continue to perform better than other retail property types in 2018 as well.

Fast moving consumer goods defy the trend of declining in-store sales and continue to enjoy a strong growth. Sales in this segment grew by 2.6% in 2017 while in-store sales also rose. At the same time, the online growth rate in these segments remains around 10% per year.


Completed office constructions across 17 major European cities in 2018 are over 3.3 million sqm, a small dip in comparison to 2017.

The average vacancy rate is decreasing as demand is outgrowing supply. The average vacancy rate is at a historic low of 5.9%. This is expected to reduce further to 5.6% by the end of the year. The most undersupplied markets will be Berlin (1.4%), Paris CBD (2.1%) and Munich (2.5%).

58% of this year’s expected completions and 40% of next year’s expected completions are already pre-let, totalling 51% of the space under construction.

Focus of the Month

Overview of the European Hotel Market

As the two traditionally dominant sectors of real estate, office and retail, undergo a period of dwindling yields, investors have set their sights towards niche markets in order to achieve target returns, spurring activity in the Hotel sector. Supported by a strong wage growth and high employment, the past year saw a record 671 million international overnight visitors to Europe, including both leisure and business travellers. An influx of capital resulted in the European hotel transaction volume breached the €20 billion-mark of 2017. Geopolitical issues such as the looming Brexit could further benefit pan-European cities due to corporate relocations away from London. Below is a deeper look into the various aspects which define the current state of the market.

Different drivers for different cities

While a few common themes dominate across cities, Europe largely remains a melting pot of culture and commerce, and each city has its own story

Business Centres – The biggest winner from Brexit is expected to be Germany, and especially Frankfurt, where a massive 75% of visitors are for business. Cities such as Barcelona and Paris are also likely to benefit with a host of global trade fairs and conferences lined up in 2019 and 2020.

Leisure Travel – A nearly 40 year low in G7 unemployment rate and strong wage growth augur well for leisure and travel spending. Porto leads the trend with a forecast of 10% RevPAR growth whereas RevPARs in Amsterdam and Prague are also expected to grow strongly at 7%.

Accessibility and Infrastructure – Investment in tourism infrastructure, primarily air connectivity, is a key proponent for growth as seen in the case of Lisbon and Porto. Berlin’s Brandenburg Airport, expected to open by the end of the year in 2020, is already a factor for a surge in hotel investments in the city.

Trading Metrics

Below is a look at the levers of growth across different European cities

Occupancy – Most European cities reflect an occupancy of over 70% fuelled by greater disposable incomes, ever increasing online booking platforms and a structural shift towards budget hotels. Even after accounting for supply additions expected in 2019, Prague and London are estimated to top the occupancy with 82.3%, followed by Amsterdam at nearly 82%.

Average Daily Rates – Geneva tops the rankings for the highest ADRs at €242, partly due to the appreciation of Swiss Franc against the Euro. Fashioning a strong midscale segment, Berlin and Prague are expected to maintain ADRs below the €100 mark.

RevPARs – Paris leads the way for expected RevPARs in 2019 at €187.6 followed by Geneva and Zurich. At the other end of the spectrum are Berlin, Prague and Porto with estimates hovering around the €75 mark

Key Transactions

>Hotel Transaction volumes reached €20.9bn in the 12 months leading up to Q2 2018, with deals in the UK and Germany reflective of continued investor appetite in the segment

United Kingdom – Strong fundamentals underpinning the sector made hotels an attractive investment proposition, especially from overseas players who accounted for €2.82 billion of total investments in the last year. One of the largest deals in this period was Project Ribbon, a pan-UK portfolio of Holiday Inn hotels, which were sold for €833 million in May 2018.

Germany – Following a sluggish start to the year, German hotel investment gathered speed to record transaction volumes of just under €2.0bn in H1 2018, exceeding the previous-year result by over 13%. The largest single asset deal was the sale of the 5-star Hilton Hotel in Berlin for around €300 million, with prime yields in the city as high has 4.85% in Q2 2018.

Pan-European – In one of the biggest deals of the year, Henderson Park completed the €550 million purchase of one of Paris’ most historic and landmark hotels, the Westin Paris Vendôme, from GIC, Singapore's sovereign wealth fund. The deal not only underscores strong market fundamentals but also Paris’ status as a truly global European city.

Major Challenges

While forecasts for the Hotel industry remain positive for 2019, below are a few challenges that investors will have to be wary of

Reduced Profitability – Although the growth of online distribution channels has indeed driven up occupancy, operators are sceptical of their high commissioning fee, usually in the range of 20 to 25%, which has decreased overall profitability despite higher RevPARs.

Competition from Airbnb and Serviced Apartments – The advent of new accommodation platforms like Airbnb and serviced apartments has increased competition for hotels, with an increasing number of tourists seeking authentic and tailored experiences. Nordic countries, in particular, have started regulating the process of finding an Airbnb, giving it a further boost.

Catering to evolving audience groups – Emerging consumer preferences, driven primarily by millennial travellers, have given operators plenty of food for thought in taking CAPEX and operational process decisions. With growing digitalization, operators face increased competition to capture and leverage data and customize their service offerings.

Funds in the Market

Recent Fund Activity

Real Estate Debt funds are continuing to gain strength in 2018 according to the 2018 INREV Debt Funds Universe report. Senior Debt strategy remains the most popular among investors in line with the trend in 2017 and 2016.

AustralianSuper, €90 billion pension fund, is looking for financing opportunities in London and other European cities focussing on mezzanine, development and refurbishment opportunities with a deal size of around €110 million and targeted returns in the range of 400-600 bps above libor.

$25 billion was raised cumulatively across almost 40 funds in Q3. Even though the number of funds closed this year has nearly halved, the amount of money raised in Q1-Q3 is more than last year’s. Due to this consolidation of capital, the average fund size has increased from $486 million in 2017 to $771.4 million in 2018 till date.

The biggest fund in the market is the Brookfield Asset Management III which is managing $10bn and is investing in multi-regional diversified portfolios.

The retail fund raising activity is slowly recovering with $2.08bn in 2018 from an all-time low of $1.05bn in 2017

Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Core Lending Strategy Allianz Real Estate Pan-Europe Commercial Real Estate Raised € 300
Value Added Australian Super Pan-Europe Commercial Real Estate Committed £ 1,000
Value Added & Opportunistic HighBrook US & Western Europe Mixed-use Closed € 600
Value Added Newcore Capital Management United Kingdom Logistics Raising € 55
Value added Penzance Washington DC Mixed-use Closed € 255
Opportunistic Gaw Capital Partners Asia Retails, Residential Raising € 1,950

Recent Transactions

Snapshot of Key Deals Direct Acquisition
Asset Name Buyer Seller Asset Type Location Price (mn)
Imagine Europa Capital Officiis Properties Multi-let office building Paris, France € 142
Warehouse in Peine Tritax EuroBox Unknown Warehouse Hannover, Germany € 82
Mixed Portfolio LXI REIT Unknown Hotels, Stores, Storage London £ 109
Wars Sawa Retail Centre Atrium Unknown Retail centre Warsaw, Poland € 301
Window Building Oxford Properties Groupama Office Paris, France € 477
LEO Unknown Asian Family Owner, LEO Office London £ 475
Mixed-use portfolio Sinoma Fastighets AB Castellum Mixed Use Sweden € 173
Itis Morgan Stanley Real Estate Wereldhave Shopping Centre Finland € 516
Warehouse portfolio Tritax EuroBox SEGRO PLC Warehouses Belgium € 83
Property Financing
Asset Name Lender Borrower Asset Type Location Loan Amount (mn)
Westin Paris-Vendôme Crédit Agricole CIB Henderson Park Hotel Paris € 300
Gallileo MunchenerHyp CapitaLand Office Germany € 140
Logistics & Light Industrial Assets PBB Bank LCN Capital Partners Logistics Netherlands € 47
Dutch Industrial Assets HSBC Schroder European REIT Industrial Assets Netherlands € 9
Student accommodation building in Leeds Royal Bank of Scotland London & Scottish Investments Student Accommodation UK € 22
Student accommodation OakNorth Mabec Property Student Accommodation UK € 37
Residential development Zorin Finance Inspired Asset Management Residential UK € 15
Build-to-rent properties Venn Partners Realstar Group Residential London € 51
Chesterfield House development Lloyds Bank Commercial Real Estate Realstar Group Residential London € 62
Key Indices
Key Indices 31-10-2018 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 196.4 (7.4%) 3.0% 6.4% 6.8%
STOXX Global 1800 Real Estate 243.68 (7.1%) 3.3% 5.8% 7.0%
STOXX Europe 600 Real Estate 167.43 (7.4)% 5.0% (12.2%) 42.7%
Dow Jones US Real Estate 309.24 (3.9%) 1.6% 7.3% 14.5%
STOXX APAC 600 Real Estate 222.83 (11.3%) 3.9% 10.3% (9.9)%
European REITs
Property REITS - Europe 31-10-2018 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 68.62 (26.1%) 4.8% (22.6%) 14.7%
Office & Industrial 243.68 (7.1%) 3.3% 5.8% 7.0%
North American REITs
Property REITS - US 31-10-2018 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 455.0 (1.9%) 13.8% (28.5%) 32.7%
Office 315.9 (11.1%) 3.2% 1.2% 12.5%
Healthcare 162.5 0.6% (2.5%) 2.5% (5.4%)
Industrial 345.5 1.1% (1.4%) 52.4% 8.7%
Diversified 217.2 (6.8%) (0.6%) 32.4% 6.0%


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