European Real Estate Snapshot


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

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May 2019

Focus of the Month

Greece Real Estate Market Economic Recovery

The year 2018 was considered a milestone year for the Greek economy. Markets' confidence gradually strengthened, and the position of the country as an investors' destination improved due to

  • Strengthening of the economic activity
  • Achievement of a primary general government surplus, above the fiscal target for the fourth consecutive year
  • Upgrade of the country's credit rating from B3 to B1 by Moody's
  • Successful completion of the EU-wide stress testing exercise for the four systemic Greek banks - Alpha, NBG, Eurobank and Piraeus.
  • Further easing of capital controls

GDP at constant prices increased by 1.9% on an annual basis in 2018 from 1.5% in 2017. The main driving forces of economic expansion were the significant positive contribution of export performance of goods and services and private consumption. Moreover, signs of recovery are evident in the real estate market, as house prices increased for the first time since 2009, by 1.3% in 2018. The Economic Sentiment Indicator (ESI) improved to 102.1 units in 2018, from 96.6 units in 2017, at a higher level than the pre-crisis of 2008 (=100). All sub-indices of business expectations and mainly the consumer confidence indicator improved in 2018 compared to 2017.

Inflation based on the Consumer Price Index (CPI) remained in positive territory in 2018 for the second consecutive year after four years of deflation. CPI increased by 0.6% in 2018, from 1.1% in 2017. The unemployment rate followed a downward trend in 2018 and stood at 18.5% in November 2018 (according to seasonally adjusted data), lower by 2.6 percentage points compared to November 2017 and by 9.4 points compared to July 2013 when reaching historically high levels.

Real Estate in Greece Hospitality
  • Greece is one of the most popular tourist destinations in the world with more than 15,000 km coastline and 6,000 islands. The tourism industry is developing dynamically as arrivals reached 30m in 2018 (up 10% from 2017) while total travel receipts reached €15.7bn.
  • Greek hotels had a markedly higher rating in 2018 both on the whole (86.3%), as well as for each month, compared to the hotels of the competing destinations in Turkey (81.3%), Italy (83.8%), France (78.9%), Spain (84.2%) and Croatia (83.7%). Basic factors of this success include particularly high performance in Cleanliness (89.3%) and Service (88.6%).
  • RevPAR of the Athenian hotel sector increased in 2018 by 10% y-o-y, RevPAR in Thessaloniki increased by 6.1% y-o-y and the Total Revenue per Available Room of the resort hotels in Greece increased by 10.1%. However, in all three sectors the growth was driven by room rates, as occupancy improved only marginally in 2018. The increase in RevPAR is more than its competitors in Southern Europe such as Rome and Madrid.
Office
  • In Q1 2019, the Athens office market showed a positive trend. However, a very small percentage of the leasing activity could be attributed to companies expanding or to new companies establishing in the city. Kifissia, which is one of the most expensive Northern suburbs of Athens, had the highest share of take up followed by CBD. The take up was led by financial services sector, followed by Pharma.
  • There is an absence of take up in the excess of 4,000 sqm in Athens market and the quality of the offices has emerged as an important factor that tenants are considering in their leasing decisions. There is now little supply of high-quality buildings in the prime office areas and this has led to a shortage of Grade A and B offices.
  • Investment activity in the sector across the first quarter of 2019 was very dynamic with an overall €100 million distributed in 13 office deals, not including the signing of the binding agreement by Alpha Investments to sell the shares of a property portfolio to Brook Lane at an agreed price of €95.3 million. REITs comprised the main source of buyer capital, followed by private funds. The completion of the transaction is expected in the second quarter of 2019. The largest transaction was the sale of Ellaktor headquarters in Kifissia of 16,219 sqm. main space and 14,452 sqm. auxiliary spaces to Orilina REIC, at €25.5 million.
  • Although the outlook is positive in terms of demand side for the sector, market growth may be constrained by a shortage of office spaces of appropriate quality and size. The remainder of 2019 will about the quality of product, as occupiers across all sectors have shown that cost is not the only consideration. The improving fundamentals of Greek real estate will continue to attract global investors, but there will be a short-term caution due to impending elections.
Retail
  • In the latest report by Foundation of Economic and Industrial Research (IOBE), households are exhibiting slight optimism, as is common in the pre-election periods. The Consumer Confidence Index recovered in March after falling back the previous month and stood at -31.6 (from -33.3) units.
  • The retail industry in Greece is largely dominated by fashion and F&B. F&B mostly comprise local brands in an expansionary phase. Prime rental values remained stable during 2018. However, during Q1 2019, the retail sector recorded weak leasing activity. Jysk expanded in Pireaus during this period, Intimissimi Uomo opened their 3rd store in Chalandri, while McDonald's announced opening of two new stores in 2019, the first in Athens along Mesogeion Avenue in Athens and the second in Larisa town.
  • There were no shopping centre deals recorded in Q1 2019 and no institutional investment flowed into this sector. As a result, capital invested into retail predominantly came from private investors whose primary focus is prime high street retail. Prime high street yields compressed as a result of increased interest and limited product on offer.
  • The prospects of the general retail market in Greece in 2019 look positive. The economic environment is improving and leasing activity is expected to remain sound in 2019 benefitting from growth in private consumption and tourism increase. The lack of prime supply might limit the activity of potential investors despite the positive outlook.
Industrial
  • The market is characterized as a good activity with some new leasing deals occurring. Industrial market is lagging in growth compared to other asset classes owing to higher illiquidity and dependence on macro fundamentals. As such, the sector is poised for growth after years of slight upward movement supported by increase in PMI as well as total import-export activity in the Greek economy.
  • The take up of logistics space has shown a positive trend. Despite the lack of added supply, the parameters like the increase of eCommerce business and the privatization of the two major Greek Port Authorities are leading to a positive outlook of the sector. In this asset class, the rental values will probably increase, especially for the high-quality product.
  • Prime rents are €2.50/sqm/month for industrial space in Athens and €3–4/sqm/month for logistic space and expected to remain stable.
  • Based on the World Bank's LPI (Logistics Performance Index), Greece from its 47th position in 2016 climbed to 42th in 2018 among 160 countries included in the study by the World Bank. Therefore, there is still a long way to go for Greece to develop the logistics market.

Key Themes

Student Housing
  • European student accommodation sector has seen a growth across the continent with increasing enrolment of international students, who with higher budgets and unfamiliarity with local housing markets form an important demand base. With issues of immigration and increasing student numbers in the UK and the US, European countries like Germany, the Netherlands and Spain have improved the marketing of their universities in order to capture a piece of the international student market.
  • Denmark witnessed the largest growth over the past five years in student numbers, up 22%. Germany and Austria both recorded an 18% increase over the same period. Germany saw a significant growth in international students already exceeding the government’s target of 350,000 international students by 2020. UK, Europe’s largest international student market saw a growth of 2% in the number of international students while had a slight decline in student numbers over five years.
  • Some of Europe’s most undersupplied cities are Rome with a 3% provision rate (number of beds/student population, followed by Porto with 3.5% and Florence at 3.8%. Spanish cities have low levels of supply and high rents. Barcelona has provision of 5%, Madrid of 5.7%, Vienna of 10.3%.
  • From an investor’s point of view, Student Housing’s attractiveness lies in it being counter-cyclical, with no link between student spending and economic cycles. Rents have grown steadily, and investment yields have been steady in the 5-7% range across Europe. In the current economic cycle, the sector offers a steady uninterrupted growth as the user demand for the asset class is not correlated with GDP growth as is for office or industrial.
Hotel Investments
  • European Hotel sector has witnessed a high investment volume of €23 billion for the 12 months to Q1 2019, driven by demand for alternative investments and operational real estate. UK had a 15.1% year on year increase and with €8.2 billion investments captured 35.5% of the total capital deployed. Also, Q1 2019 saw a robust start to the year with an increase of 24.5% when compared to Q1 2018.
  • Spain saw an up 17.5% for the 12 months to Q1 2019 and was the second largest with 18.2% of the investment volume and deals of €4.2 billion. Germany saw a modest up of 7.1% and investment of €3.9 billion of 17% of the total European investments. France saw a year on year decline of 6% and an investment volume of €1.3 billion to be the fourth largest market. Benelux saw a decline of 54.4% due to decrease of deal activity in Netherland while Nordics also had a decline despite record activity in Finland where investments were up 72.7%. Major increase in investments was witnessed in Portugal with 346% year on year increase and investment volume of €0.39 billion and Switzerland of 209% increase and volume of €0.29 billion.
  • Strong investor demand is putting pressure on yields in Spanish cities of Barcelona and Madrid across all key operating structure and Lisbon and Porto for hotels under operational lease or management contract. Amsterdam and Helsinki also witnessed significant decline in yields under operational lease agreement.
UK Lending Activity
  • Despite the political and economic headwinds, the UK lending market has been robust in 2018. UK’s total outstanding loan book increased by 5% to £173 bn.
  • 12 percent more commercial real estate debt was originated in the UK in 2018 than in 2017 according to the lending report by Cass Business School. 53% of the £49.6 bn of loans in 2018 were from new acquisition financing. New development finance accounted for £8.8bn (£1 bn less than in 2017) of which the majority was for residential development of £5.2bn primarily supplied by UK Banks and other lenders. Financing of PRS projects made up £1.7bn and was one of the difficult areas to finance.
  • UK banks have been the most active accounting for £21.9 bn of new businesses. Non-UK banks also had an increase in origination to £10.3 bn. The largest increase in originations were from insurance firms with an increase of 21% to £5.1 bn and other non-bank lender with an increase of 26% to £7.6 bn. The largest decrease of 19% in origination came from German banks.
  • Loan pricing was stable with some slight downward pressure for loans secured by prime property and low LTV ratios. Due to credit concerns over retail income, loans secured by retail property were the most expensive. Pricing of loans secured by prime retail property increased to 233bps from 214bps compared with 216bps for loans secured by prime logistics.

Funds in the Market

  • The first quarter of 2019 saw the strongest Q1 fundraising since the global financial crisis. However, this is largely attributable to two mega-fund closes during the quarter: Brookfield Strategic Real estate Partners III at $15 billion and Lone Star Fund XI at $8.2 billion. In fact, only 17 funds had held a final close at the time of compiling the data for this report – the fewest fund closings for any Q1 in the past six years.
  • The top ten largest funds to close in the first quarter of 2019 collectively raised $36 billion of investor capital. Brookfield Strategic Real Estate Partners III sits atop the list, having raised $15 billion, followed by Lone Star Fund XI with $8 billion. Both funds had a multi-regional focus.
Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Value-Add EQT Pan - European Multi-Asset First close € 500
Value-Add/Opportunistic Harrison Street Real Estate Capital Pan - European Speciality Housing Final Close € 500
Value-Add BKM Capital Partners US Industrial Final Close € 382
Value-Add/Opportunistic Corestate Capital Germany High-Street Retail Closing € 250
Core BNP Paribas REIM Pan - European Logistics First Close € 200

Recent Transactions

Snapshot of Key Deals
Asset Name Buyer Seller Asset Type Location Price (mn)
La Defense Majunga Institutional investors Unibail Rodamco Westfield Office Paris € 850
Office Portfolio Amundi Immobilier Warburg-HIH Invest Office Germany € 570
Alexanderplatz portfolio GEG German Estate Group Tishman Speyer Office Berlin € 365
Project Ostium Prologis Europe Alecta, Bockasjo Logistics Sweden € 350
Castellana 200 Allianz Real Estate Madrid Pension Investment Board Mixed-Use Office Madrid € 250
Lixa Hana Financial Yareal International Office Warsaw € 150
Asset Name Lender Borrower Asset Type Location Loan Amount (mn)
Dutch Office Assets PGIM, Rothesay Life CBRE Global Investors Office The Netherlands € 350
Mixed-use building in Germany Allianz Real Estate Antirion SGR, PosteVita Mixed-Use Germany € 140
Office at 92 Avenue Allianz Real Estate, CACIB Oxford Properties JV Office France € 164
World Trade Center Ballerup Starz Real Estate Kongeegen A/S Office Denmark € 22.6
Office building Lyoner Stern Münchener Hypothekenbank Investcorp Bank Office Germany € 48

Key Indices

Key Indices 30-04-2019 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 219.1 13.4% 7.3% 11.2% 20.0%
STOXX Global 1800 Real Estate 271.93 13.1% 7.0% 11.3% 19.9%
STOXX Europe 600 Real Estate 174.83 11.3% (2.8%) (1.3%) 19.6%
Dow Jones US Real Estate 342.66 15.8% 14.3% 13.6% 25.9%
STOXX APAC 600 Real Estate 254.68 10.0% 0.1% 10.5% 11.8%
Property REITS - Europe 30-04-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 63.16 8.6% (27.9%) (38.9%) (40.7%)
Office & Industrial 271.93 13.1% 7.0% 11.3% 19.9%
Property REITS - US 30-04-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 417.49 2.4% 1.5% (24.7%) (10.8%)
Office 343.63 18.4% 5.9% 0.8% 6.8%
Healthcare 173.09 6.4% 22.5% 1.2% 1.2%
Industrial 404.99 25.4% 19.0% 65.1% 92.9%
Diversified 250.78 19.4% 15.6% 34.9% 43.7%

Disclaimer

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