European Real Estate Snapshot

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


October 2018

Markets Overview

Asian Interest in Europe

Even with the turmoil brought about by the Brexit uncertainty, London remains an attractive destination for Asian capital, with the 5 largest deals in London involving Asian investments. UK’s share among European destinations was 65% until May 18.

Restrictions on outbound Chinese investments have caused a slowdown, though Singapore and South Korea are compensating for it. The Chinese are shifting their focus from trophy assets to growth sectors like logistics and other operating assets.

Korean investors are looking at Europe due to dearth of local assets. Their focus is primarily on core and value-add assets in prime locations, especially London offices.

German logistics properties with their strong yield momentum have also attracted Asian attention.

Residential Development Financing in London

In order to tackle the under-supply of housing in the UK, the government wants construction of new homes to increase to 300,000 per year which has resulted in an uptick in registered plans for new houses by developers.

With banks retrenching from the development space, opportunity exists for lenders to take advantage of the gap between demand and supply.

Key fund activity: KKR and Urban Exposure set-up a JV (£165 million) to provide debt capital to residential development projects, while Cain International acquired a majority stake in Fortwell Capital providing capital injection of £400 million.

Traction in Spanish Retail and Logistics Assets

A favourable economic backdrop and recovering consumer confidence is being reflected in rising footfall and sales in shopping centres across the country driving international interest. This upsurge in demand has resulted in yield compression from 5.5% in Q1 2015 to 4.25% as of Q2 2018.

There is a booming investor appetite in the logistics segment, with e-commerce giants looking for warehouses in less expensive alternatives to Madrid and Barcelona. A total of 865,000 sqm of new logistics GLA has been delivered in the past year.

Revival of European CMBS

Four CMBS deals backed by London and Netherlands offices, and the UK, Germany and Netherlands logistics properties were closed last quarter.

Latest securitisations from Bank of America Merrill Lynch and Morgan Stanley indicate widening spread (c. 100 - 110bps), a trend across structured finance market, post a wave of tightening spreads (c. 70 - 80bps) earlier this year.

Focus of the Month

The Retail Dilemma

The retail sector is seeing an ongoing reduction in demand for physical space in most parts of Europe resulting in a slowdown of the development pipeline. Increasing vacancies, decreasing rents and high-profile bankruptcies and Company Voluntary Arrangements (CVA's) have cautioned investors. In some countries like Belgium, even though occupier activity was at a normal level in Q2 2018, the sentiment in the market was not positive. However, core shopping areas in dominant cities are still performing better that others, as their catchment areas is expanding at the expense of smaller retail outlets. The best locations in major cities still remain attractive to investors. Retailers who provide immersive and personalised experiences are still thriving. Below is a snapshot of the various aspects defining the current state of the market.

Causes for trouble

Economic factors as well as growing interest in e-commerce have led to increasing pressure on the retail sector

Economic slowdown – Countries like France are facing a slowdown due to new US tariffs, increasing oil prices leading to increasing inflation and adding pressure to consumers’ spending power, and a decline in job creation. In the UK, GDP decline due to Brexit has had a significant impact on business and investor sentiment.

Bankruptcies – A number of high-profile retailers (Toys R Us, House of Fraser, Mothercare, New Look) have announced CVA's or store closures, adding to the negativity.

E-commerce – With consumers shifting from physical stores to online shopping, footfall to physical retail is decreasing (contracting at 1% p.a. in the UK). This also leads to higher vacancies, especially in smaller towns and shopping galleries.

Declining rents – Big players are negotiating rents in high streets. Due to a decreasing demand, rents in many market segments (including top locations) are facing a downward pressure. The UK High Street prime rents fell 2.7% outside of London


Transaction volumes have decreased, especially in non-prime locations

Foreign funds – Investors are increasingly pursuing a pan-European strategy for achieving diversification, and are mainly interested in high-quality retail spaces in the best locations

Drop in investments – The UK and Netherlands saw a drop of 47% - 50% in 2018, standing at £2.7 billion in Q2 and at €1.2 billion in H1 respectively

Demand and supply – Vacancies are expected to increase in the coming months as store rationalisation programs continue. The development pipeline in many countries is shrinking as a result of rising vacancy levels, owing to an exponentially growing interest in e-commerce

Yields – Prime yields have fallen on a yearly base for almost all dominant retail cities in Q2 2018. Prime retail parks in Germany saw a 5-10 bps compression in Q2, and the spread between prime and secondary yields in the UK widened from 360 bps in Q2 2017 to Q2 2018


A large amount of debt is maturing in the near future

Maturing debt – £7 billion of debt originated between 2012 and 2015, across 200 shopping centres is maturing in the next few years.

Refinancing opportunity – High risk-high return lenders are looking to use this opportunity of maturing debt to refinance borrowers. Underserved markets have become attractive as investors believe that these could also provide good returns.

Track record – As debt is maturing, having a good track record is becoming increasingly important if owners are seeking to refinance

Preferential letting

Owners are choosing the right tenant mix to achieve high footfall and attract investors

Lease term – Shorter duration leases are being preferred as these allow non-performers to be replaced with new tenants, thus turning rent quickly.

Preferred sectors – Discount retailers have remained attractive as they increase footfall. With the growth of e-commerce, click and collect stores are being desired. There is also a continued demand for e-tailers to have a physical presence to drive brand awareness and connect with customers

Bright spots

Even with most of Europe sporting a negative sentiment, there are a few pockets which are performing well.

Ireland – A positive economic growth outlook, increase in wages and hence a strong domestic demand have provided a positive backdrop for retail in Ireland. Investments were strong in Q2 with a €176.4 million turnover.

Portugal – A growing economy and increasing consumption have been responsible for an upward trend in retail during the first half of the year. However, the fashion sector is losing grounds to the food and beverages sector. Transactions in 2018 stood at €820 million with an impressive Q1 but a dip in Q2.

Spain – Sustained private consumption expansion has led to retailers’ confidence being strong and driving them to strategic locations (from prime to near-prime). Well performing assets are still on the radar for investors. Spanish REITs are new players in the high street capital market.

Funds in the Market

Recent Fund Activity

Despite yields on prime assets compressing in the UK, Germany and France, there seems to be a strong appetite for the asset class, coming from many lender bankers who have reinvented themselves as fund managers. The €52 bn of private real estate deals financed in Q2 2018 was indicative of heightened competition against traditional banks.

Within the European space, fundraising is active for 25 debt funds with known targets above €100 mn. The largest of these debt fund managers include Blackstone Real Estate Partners Europe, Kildare European Partners, AXA Investment Managers, Orion European Real Estate Fund and Pramerica Real Estate Capital.

European Markets also witnessed 804 private equity deals worth €88.5bn in Q2 2018. While the volume was largely driven by domestic firms, a number of foreign investors made substantial investments, with Singapore's sovereign wealth fund GIC Pte Ltd leading the pack for the quarter. Ahead of private equity giants like KKR & Co and Bain Capital, GIC spent a total of €12 bn in Europe over the three-month period.

Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Alternative Credit NN Investment Partners Netherlands Residential Mortgages Raising €2,000
Value Added Aermont Capital Western Europe Prime Assets Raising €1,600
Value Added Tristan Capital Partners pan-Europe Diversified Raising €1,500
Value Added Tishman Speyer pan-Europe Office, Mixed Use Final Close € 750
Value added CBRE Global Investors Pan-Europe Retail, Logistics Final Close € 1,000
Value added AEW France Residential, Senior Care Final Close € 500
Value added Hines Pan-Europe Diversified Final Close € 720
Core AEW France Residential, Senior Care Final Close € 500
Value Added Baring's Real Estate pan-Europe Office, Retail, Logistics Raising € 297
Whole Loans Laxfield Capital UK Diversified Raising € 281

Recent Transactions

Snapshot of Key Deals Direct Acquisition
Asset Name Buyer Seller Asset Type Location Price (mn)
MANGO’s Global Distribution Centre Tritax EuroBox Unknown Logistics Barcelona € 150
Verde Office Building Deka Immobilien Tishman Speyer/PSP Investments Office London € 515
15th century palace Europa Capital Private individual Residential Mallorca € 22
Residential Portfolio Cerberus Banco Santander Residential Pan Spain € 1,540
Hotel Portfolio Corum AM CapMan Hotels REw Hotel Pan Finland € 72
Mammut Shopping Centre NEPI Rockcastle Lone Star Retail Budapest € 254
Passy Kennedy Cegereal Unknown Office Paris € 218
Aldgate House CDL Hermes IM/CPPIB Mixed Use London € 205
The Shepherds Building Workspace Helical Office London € 140
Garden Tower complex GEG German Estate Group Tristan Capital Partners Office Frankfurt € 275
Broadway Plaza LGIM Real Assets Aviva Investors Leisure Birmingham € 53
Property Financing
Asset Name Lender Borrower Asset Type Location Loan Amt. (mn)
Medical Centre Aviva Investor MedicX REIT Health Care Centre UK & Ireland € 297
Data Centre Portfolio ING Bank The Data Centre Group Data Centre Netherlands € 52
Middleborough’s Centre M&G Ashall Projects Mixed UK € 24.6
Logistics Portfolio Aareal Bank Apollo Global Management Logistics Pan-Europe € 800
Logistics Portfolio Lloyds Bank Commercial Chancerygate Logistics UK € 68.5
Wiltshire, Oxfordshire and Gloucestershire Black Rock Green Square Residential UK € 84.2
Key Indices
Key Indices 28-09-2018 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 203.91 (3.9%) 4.1% 13.0% 0.6%
STOXX Global 1800 Real Estate 253.62 (3.3%) 4.1% 12.4% 0.7%
STOXX Europe 600 Real Estate 174.32 (3.6%) 7.0% (6.2%) 35.8%
Dow Jones US Real Estate 318.33 (1.0%) 1.6% 15.9% 8.8%
STOXX APAC 600 Real Estate 238.53 (5.1%) 5.5% 13.4% (14.7%)
European REITs
Property REITS - Europe 28-09-2018 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 73.51 (20.8%) 6.9% (18.0%) 11.1%
Office & Industrial 253.62 (3.3%) 4.1% 12.4% 0.7%
North American REITs
Property REITS - US 28-09-2018 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 449.3 (3.1%) 8.0% (15.2%) 22.7%
Office 333.35 (6.1%) 2.2% 11.7% 5.5%
Healthcare 160.21 (0.8%) (6.6%) 6.5% (2.0%)
Industrial 357.43 4.6% (0.4%) 66.8% 3.2%
Diversified 226.72 (2.7%) 3.4% 42.1% (0.5%)


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