European Real Estate Snapshot

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


June 2019

Focus of the Month

European Multifamily Investment Sector

2018 was a turning point in the European multifamily investment sector, with volumes exceeding office investments in some markets. The year saw the multifamily investment volume reach €40bn (26% y-o-y increase). Historically considered an alternative sector, multifamily now accounts for an average of 17% of the total investments. This re-assessment of risk in this asset class has caused a downward trajectory of yields.


The rising interest in the multifamily sector investment is supported by a number of factors: lower correlation to economic cycles, secure rental income acting as inflation hedge and a lack of supply in many markets. Rising transaction activity has compressed yields with capital values having risen.

  • The average prime multifamily yield was at 3.1% in Q4 2018, 13bps below the previous year and 36bps below the average prime office yield.
  • Prime multifamily yields are below prime office yields across all markets and are on par with offices in Paris at 3.0% and Dublin at 4.0%.
  • Major yield tightening over the past three years was noted in Berlin (81bps), Dublin (75bps) and Amsterdam (61bps).

The major risk to multifamily investors is the changing government regulations. Amendment to the leasing laws to offer more protection to the tenants could affect the attractiveness of the sector to investors.

  • Germany and Ireland already have rental curbs in place.
  • UK has some inconsistencies in planning policy, potentially causing uncertainty in some locations.
  • For institutional landlords in Spain, the government has increased the minimum duration of tenancies from three to seven years and additional measures to curb excessive rent hikes.
  • The Netherlands is also contemplating additional measures in the form of ‘emergency brake’ on excessive rent increases.
Active Players & Major Deals

A wide range of investors are now involved in the buying and selling of this asset classes. Investment managers, Public Real Estate Trusts, Equity Funds and Developers among the most active.

  • Blackstone is a major investor in Spanish housing through the purchase in 2017 of a majority stake in a €30bn real estate portfolio owned by Banco Popular. Spanish housing is still on the radar of the company and is an important target for its latest European opportunity fund of close to $10bn.
  • AXA is an active player in the Spanish market owning 28 buildings in Madrid and Barcelona and is involved in the sale of an ongoing project of 135 units in the heart of Madrid.
  • Starwood Capital Group has formed a new €1bn Irish build-to-rent (BTR) platform with Urbeo Residential and the Ireland Strategic Investment Fund (ISIF).
  • CBRE Global Investment Partners and Madison International Realty announced the acquisition of a 6,458-unit portfolio of Spanish residential properties valued at nearly $1 billion.
  • Greystar has launched its platform in France, to acquire and develop rental housing in the market. It is also planning to raise £750m for its first UK built-to-rent fund. In Europe, the firm owns and operates a student and multifamily housing portfolio valued at more than €7bn comprising 49,000 units across the UK, Spain, the Netherlands and Austria.
  • Aberdeen Standard Investments launched a pan-European residential property fund focusing mainly on the European Private Rented Sector.
  • The growth in London has been driven by investments from North American funds: Realstar has forward funded a 161-home scheme in Hackney; a joint venture between Henderson Park and Greystar forward funded £105.5m to Telford Homes; a Canadian institution PSP Investments, through the formation of a new partnership will deliver a £670m private rental scheme featuring 1,200 rental homes in Stratford.
Overview of Major Markets
  • Germany is the largest market with €15.1bn of turnover. There were €2.7bn of transactions in the first quarter of the year, of which publicly-owned housing companies accounted for 29%. This is in line with the strategy of local politics to increase the stock of the publicly-owned housing companies through development activity, buying portfolios and newly-built properties.
  • Investment in the institutional backed UK multifamily private rental sector more than doubled in 2018 making it now the second largest market in Europe. The momentum continued to build in Q1 2019 with £1.04bn of investment, which was four times higher than Q1 2018. Second quarter should also see close to £780m of deals under offer.
  • The Netherlands had a record investment of around €6.5bn in 2018, 58.4% up from the year before, underpinned by large portfolio deals.
  • Sweden saw multifamily investment at €5.3bn compared to a five-year average of €4bn and accounted for 37% of the total investment activity. Residential properties had a strong first quarter, with an investment volume of SEK 10bn (€960m) and a market share of 24%. Forward funding deals represented 64% of the residential investment volume.
  • Through 2018, around €1.1bn was invested in Irish PRS assets representing a tenfold increase on the 2017 figure. Investors have been attracted by a scarcity of supply relative to demand with the vacancy rate in the PRS is currently sub-2% in all locations. Dublin, which has the strongest population growth, accounted for 51% of Ireland’s employment gains in 2018 and also attracted the bulk of the capital.
  • In Denmark, the Netherlands, Spain and Sweden the volume of investments in multifamily has surpassed offices. Major growth was witnessed in France which saw investment volume of €3.2bn in 2018 vis-à-vis €200mn in 2017. Spain witnessed a 238% rise of investment in the multifamily sector last year.

The demand for rental is rising, particularly in cities where house prices advance faster than earnings and home ownership affordability is challenging. The prospect of rising interest rates will be another hurdle for future buyers which will result in pressure for more rental stock. Mindful of these trends property investors have been seeking opportunities to get exposure to the sector, either through direct investment, development opportunities or the listed sector.

Key Themes

Debt and Leverage trends in Real Estate

Cass business school at the City University of London recently published a report on the UK Commercial Property Lending which had some notable takeaways

  • Even though investments are down in the UK, the lending market is still optimistic. Debt supply lags borrower demand by a year and hence an increase of 12% on loan origination was seen in 2018 compared to the demand of £72 bn in 2017.The investment volumes had dropped by 6.5% in 2018 especially because of Brexit to £65 bn.
  • German banks have reduced lending in the UK and have originated only £4.6 bn, only 81% of 2017 volumes. This also seems to be an effect of Brexit. Pfandbriefe banks (which specialize in real estate and public sector financing) are awaiting the legal changes specifically because of its effect on the UK RE loans in the German covered bond market.
  • The number of BTR homes in the UK have increased by 40% to 43,000 units according to Savills but the lending volumes for residential development have decreased by 20% to £5.2 bn. This is heavily attributed to unavailability of buyers for completed and operational BTR properties apart from the difficulty in underwriting volatility in projected rental incomes.
  • Retail sector is still falling. Property values, LTV have been decreasing. LTV is said to be written well below 50% compared to the 56% for Secondary assets and 57% for Prime assets. Risk premium has increased which can be seen by the increase of 42 basis points to 334 bps as loan pricing for secondary retail properties.
  • Lenders have gotten more cautious which has been demonstrated by the fact that 80% of UK’s outstanding loan book have LTVs of less than 60% compared to the average LTV of 80% before the Global Financial Crisis. This is not just the lenders learning important lessons from the past but also the more stringent BASEL standards and the UK’s slotting rules, which require higher capital reserves for loans with LTV above 50%.
Office Market in Europe
  • In most European markets office vacancy rates have been falling since 2010 and now are at their historic lows. The lowest vacancy rate in Europe was recorded in Berlin (1.6%), followed by Munich (2.3%) and Luxembourg (4.3%). Vacancy dropped the most in Amsterdam and Lisbon, whereas Warsaw, Frankfurt and Dublin also saw significant declines in vacancy.
  • Tenant demand for office spaces in the main European markets remained solid in Q1 2019, though a slight decline of 3% was witnessed in comparison to Q1 2018. Results show variations in the city market. Owing to the lack of large-scale deals, the office markets in Central Paris and Central London experienced significant decreases in take-up as volumes, compared to 2018, dropped by around 23% and 21%. Regardless of that, take-up remained in line with 10-year averages.
  • Take-up volumes in the four main German markets decreased (-4%) overall, with Berlin (+13%) setting a new record for Q1 with 244,000 sqm of take-up. Brussels saw the most impressive growth, where volumes rose by +210%. On the other hand, the office take-up witnessed a sharp decline in Luxembourg (-62%).
  • Driven by the high demand for offices and the decrease in vacancy, prime rental values increased or remained steady in almost all the main European markets. Madrid (+12%) saw the most significant growth in rental values. Other big increases were in Hamburg, Berlin (+9%), Milan, Munich and Frankfurt (+5%).
Coworking Space
  • Coworking has become the new normal in that it has become the expected and preferred workplace of today’s workforce. This can be gauged from the fact that large companies are increasingly focusing on workplace experience to attract and retain talent, and that a significant percentage of workers who have the option to work from home or a coffee shop are opting for coworking spaces instead.
  • Factors like growth of the digital economy, entrepreneurial activity and flexibility have contributed in making the metros co-working hotspots. Other factors like scale and business environment also play an important role.
  • Demand for coworking space continues to spread across Europe, and while London remains in the lead with total coworking stock (1.1 million sqm), certain metros appear poised to become strong players. Amsterdam, Stockholm, Dublin and Helsinki are among the major cities in the coworking and flexible office sectors, which are the next likely growth hotspots across Europe.
  • Coworking space has taken a strong hold in London, totaling more than 10.7 million sqft. The flexible workspace office sub-sector—which includes coworking space, serviced offices and managed offices—now constitutes 10 to 20 percent of leasing activity in Central London.
The Gap between Demand and Supply of Leverage
  • Laxfield Capital’s latest UK CRE Debt Barometer report shows that there is a steady increase in demand for LTV of 4.3% from 2014 to 2018. This growth is not as pronounced as it was in the previous year (0.6% growth compared to the 3.3% growth in 2017).
  • This micro-trend appears to have emerged in the past few years where borrowers are very hungry for riskier leverages one year, then their appetite seems to reduce the next year, only to be followed by the want of riskier leverages in the year after.
  • Even though portion of the demand for leverage for lower LTVs (lesser than 45%) has more than doubled (5.13% in 2018 compared to 2.37% in 2017), the middle LTVs (45% - 55%) have contributed a huge portion of their demand to the upper middle LTVs (65% - 70%) increasing it by twice. The upper LTV’s (greater than 75%) portion have remained more or less constant.
  • 19 of the 20 markets in Europe showed no change in typical LTVs offered for senior lending on prime offices. Finland was an exception where the LTV decreased to 60% from 62.5%.
  • The lending margins mostly remained constant with 5 markets recording declines, out of which the most attractive was Amsterdam which lent at a slightly higher LTV as well compared to Paris and Frankfurt (the best growing commercial hubs in Europe).
  • The cost of debt fell even though the margins were unchanged because of the declining interest rates in most markets.
  • As expected, the margins for Retail increased with a lower average LTV and lower borrowing opportunity whereas the margins for Offices and industries decreased.

Funds in the Market

Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Value-add Angelo Gordon US, Europe, Asia Multi-asset Closing $ 2,750
Debt Madison Realty Capital Asia Office, Multifamily Closed $ 2,250
Core The Carlyle Group Pan-Europe Mixed-use Closed € 540
Opportunistic Basis Investment Group USA Mixed-use Closed $ 410
Value-add BKM Capital Partners USA & Pacific Northwest Industrial Closing $ 381
Value-add JR Capital UK Industrial Closed ₤ 100
Debt Pictet Alternative Advisors Pan-Europe Mixed-use Launched Undisclosed

Recent Transactions

Snapshot of Key Deals
Asset Name Buyer Seller Asset Type Location Price (mn)
Crystal Park Office South Korean Investor advised by La Française Icade Office Paris € 691
T-Center Office Building South Korean Investor led by KTB Investment & Securities Quadoro Real Estate Office Vienna ₤ 300
Polish Shopping Centers ECE Real Estate Partner Atrium European Real Estate Shopping Center Poland ₤ 298
Office Portfolio NH Investment & Securities Co. Ltd. and Hana Financial Investment Co. Ltd EDGE Technologies Office Amsterdam $ 294
Kölnisch Quartier Landmark Family Office East Guardian Tristan Capital Partners Mixed-use Cologne ₤ 220
300 Apartments Catella Garbe Immobilien Projekt Residential Apartment Germany ₤ 117
Sports Direct Distribution Centre CBRE Global Investors Sports Direct Warehouses Derbyshire € 120
Prime office in Soho Submarket Royal London Asset Management Aviva Investors Office London ₤ 75
Asset Name Lender Borrower Asset Type Location Loan Amount (mn)
Quartier Heidestrasse LBBW  Aggregate Holdings Office Berlin ₤ 400
BTR scheme Cheyne Capital Quintain Residential London ₤ 173
Westland Logistics Park pbb Deutsche Pfandbriefbank Hines Global Logistics Netherlands ₤ 75
Gyle Square NHS Headquarters ICICI Bank UK Hyundai Asset Management Office Edinburgh ₤ 36
17-storey BTR Building OakNorth WMG Group Residential London ₤ 17

Key Indices

Key Indices 31-05-2019 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 218.81 13.3% 6.6% 11.1% 15.6%
STOXX Global 1800 Real Estate 271.74 13.0% 6.8% 11.8% 15.5%
STOXX Europe 600 Real Estate 172.46 9.8% (3.2%) (5.1%) 13.5%
Dow Jones US Real Estate 341.92 15.5% 10.6% 11.0% 22.5%
STOXX APAC 600 Real Estate 252.35 9.0% (0.2%) 14.1% 5.4%
Property REITS - Europe 31-05-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 56.62 (2.7%) (31.5%) (45.1%) (48.9%)
Office & Industrial 271.74 13.0% 6.8% 11.8% 15.5%
Property REITS - US 31-05-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 387.56 (4.9%) (7.4%) (28.4%) (19.3%)
Office 334.78 15.4% 0.4% (1.7%) 2.3%
Healthcare 181.99 11.8% 20.7% 4.8% 5.4%
Industrial 393.98 22.0% 13.1% 51.7% 83.9%
Diversified 256.49 22.1% 16.6% 33.0% 42.3%


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, Cushman & Wakefield, Heitman, Urban Land Institute, Financial Times, SWFI