European Real Estate Snapshot

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


Septmber 2019

Focus of the Month

Impact of Brexit

The ever-prevalent uncertainty around Brexit has caused a drastic slowdown in transactions both in value and volume. Compared to Q2 2018, the reported transactions declined by 31% in Q2 2019 in value, while the number of deals in continental Europe were down 15% during Q1 2019 and Q2 2019.

The European office investment market had the slowest start in five years in Q1 2019 and Q2 2019, with €47.6bn in transactions completed, a 9% decline over the same six-month period of 2018. The beds sectors are benefitting from structural market factors like demand-supply mismatch and recent wage gains and are now attracting around a third of all the investment capital being placed in European property.

Scenario in the UK

The uncertainty surrounding Brexit is worrying property investors in the UK, primarily in England, Scotland and Wales. This has resulted in investors becoming increasingly risk averse. It has been observed that investors appeared to be switching out of retail property into more defensive residential and beds sectors. Apartments continued to be the second largest sector after offices, having overtaken retail last year for the first time.

The increasingly gloomy scenarios have not gone unnoticed among watchdogs in the UK. Earlier this year, Britain's financial services industry regulators allowed for daily monitoring of real estate fund cashflows. Also, in recent weeks:

  • The £856m Dumfries & Galloway Council Pension Fund postponed planned investments in UK property until later this year, citing the current political uncertainty around Brexit as the main reason.
  • Data published by BrickVest that captured the views of over 6,000 international professional real estate investors showed that only 27% of them view the UK as a preferred market, a 4% dip from the last year.

According to industry observers, countries like France and Germany are likely to benefit the most as international investors pull out from the UK real estate market.

Commercial Real Estate
  • As per recent Calastone data, investors pulled out roughly £1.4bn between June to October 2018. In June 2019 itself £105m was taken out of funds with sell orders outstripping buys by 1.6 to 1 indicating that funds sold significantly more assets than they acquired. When compared to December 2018, the overall trading volume and value in property funds plummeted by around 42% in June 2019. While the drop in the January to May period was primarily driven by a dip in sales, June was marked by investors reconsidering the asset class. It was the ninth consecutive month of capital outflows for funds focused on British assets.
  • A recent poll of real estate experts believe that Britain’s drifting property market has taken a hit from a disorderly Brexit, with average prices slipping about 3% nationally in the ensuing six months and as much as 10% in London. The trend suggests that UK and London real estate prices would fall in the coming subsequent six months after leaving the European Union without an agreement. But if Britain departs the EU with a transition deal, prices and investments are expected to rise by 1.5% and 1.4% respectively over the following two quarters.
  • However, the office market in the UK has been hopeful, with investors focussing on getting the location and offering right for tenants. As per a recent report by Knight Frank, investment in Edinburgh offices during the first half of 2019 surpassed 2018’s annual total majorly because of some key deals in Q2. Nearly £310m was invested in the city’s offices in H1, beating 2018’s total of £284m.
  • The competitive value of the Pound Sterling of late has given tourism in the UK a certain push with the effects being felt in the hotel sector performance. It is expected that the sector will remain robust in the face of uncertainty, and trading performance growth is set to continue in H2- 2019.
Residential Space
  • Foreign demand for property soared in the previous year, as a declining pound made housing cheaper for foreign investors with strong home currencies and spurred real estate purchases, especially in London. But this year experts suggest that foreign demand for property will be weak. The first Reuters UK housing market survey since Boris Johnson took over as prime minister said risks to the real estate market were skewed to the downside and despite the new PM and team in government, there are big icebergs ahead, not the least of which is the apparent willingness to leave the EU without a deal. This is likely to spook the markets before it reassures them.
  • There however are fundamentals cushioning which are supporting the market from falls. The Residential market is primarily supported by the ongoing shortage of homes. Mortgage rates are low and not set to rise and recent wage gains have increased household spending power which will further enhance the supply-demand shortfall. These factors are helping in preventing the current slump in house price growth from developing into an outright fall in prices. Also, Prime Minister Boris Johnson has reduction of stamp duties on properties on his agenda. Rate reductions, if brought into effect, would help further stimulate the market and encourage currently reluctant buyers to make a move.
  • Estimates of average UK house prices are forecasted to rise by 1.0% this year, 1.8% in 2020 and 2.7% in 2021 compared to the previous forecast of 1.2%, 2.0% and 2.5% respectively. London house prices have already declined by 5% from their recent peak and are further expected to fall by an additional 2%. With these recent falls and some recent wage gains outstripping inflation, London’s average house-price-to-earnings ratio has slipped to 12 times from a recent peak of 13.4.
Investor Outlook French and German Markets

Appetite for the UK property market among German and French investors fell to 14% and 10% respectively, compared to 19% in the previous year for both German and French investors. France and Germany are the biggest beneficiaries of the UK's decline, with a 20% and 7% year-on-year increase in international investment sentiment respectively. They are becoming more attractive destinations for international real estate capital and this trend is expected to continue over the third quarter. The growing fears of the UK heading for a no-deal Brexit is prompting new investors to shy away or look for alternative European options and existing holders to ask for their money back.

Investment Opportunities in the UK

There are a number of foreign funds on the other hand which have flocked to Britain in the light of Brexit. These investors see the uncertainty due to Brexit as a great investment opportunity. They are majorly being driven by the hope of weakening of the pound making the UK property market attractive to them. There are still many property hot spots in the UK, despite the Brexit uncertainties and the investors feel that investing in the UK property market is still a good idea. The belief amongst the institutional investors is that it is the right time to be looking at London for capital infusions.

Investors see the demand-supply mismatch and the unaffordability of homes as a great opportunity for rent-based properties. The shortage is further compounded by the current lack of professionally managed build-to-rent properties in the UK, with existing rental stock largely dated and in need of modernisation.

  • Astarte Capital Partners launched a £400m London fund as they felt Brexit offers investors an attractive entry point to London’s commercial property market.
  • Aviva Investors recently added several senior asset managers to its inner London team, as the global asset manager is confident real estate in the heart of the British capital will outperform in the short and long term.
  • German real estate giant ECE entered into a joint venture with Art-Invest Real Estate Management for the development of 88 luxury apartments, 35,000 sq. ft. of commercial space and 15 affordable housing units on a one-acre site in central London in the heart of London’s West End.
  • Hong Kong’s Prime Pacific and Jersey based ED Group Holding launched a new fund for APAC investors after the two companies created a joint venture to invest in London residential space.
  • US-based specialist Greystar teamed up with Henderson Park for the acquisition of a build-to-rent scheme in east London for £105.5m

Key Themes

Dutch Real Estate market
  • Amid Brexit, trade war escalations and rising inflation, the Dutch economy continues to produce significantly better results in comparison to the Eurozone average. The open nature of the Dutch economy facilitates a strong growth in the real estate sector with an exception of downfall in the retail sector, which is caused by the strong rise of e-commerce. 
  • Over the last decade, Inflows of the foreign investments (+855%) grew 6 times faster than the domestic investment (+144%). The proportion of the total capital invested by North American investors in the Netherlands has more than doubled to 20% over the last 5 years.
  • The transparency of the Dutch market, the stable political situation and the low interest rates maintained by the ECB are the fundamental drivers of this exceptional growth. The low European interest rates lead to higher yield gap (around 300 basis points), which creates an attractive climate for real estate investments.
  • Small up-market decontrolled sector has good gross rental yields which beats many other countries. Yields on apartments ranges from 3.7% to 5.3% in Amsterdam and are around 5.6% to 6.4% in The Hague.
  • Imports and exports have grown by 66% and 68%, respectively, over the last decade. With 22% growth rate, the logistics sector continues to grow rapidly with a take-up of over 2.5 million square meters every year and the office market is almost stable in spite of a supply shortage.
  • The cross-border investment, which was once between 25-35%, has reached to 50% over the recent years. Investments originating from an increasing number of different countries mitigate the likelihood of Dutch real estate sector facing a sudden downfall, in the scenario of an unexpected economic slowdown. A varied influx of capital will be a stable driver and continue to attract foreign capital.
Italian Real estate market
  • The Italian Real estate market has begun to attract investors to place property investments again, as some of the investors have reported their best years since the onset of the financial crisis. Despite the Italian house prices declining by 0.4% y-o-y, the market is recovering gradually and it has recorded a strong demand corresponding to new houses as compared to the houses which have not been renovated for decades.
  • Most luxury homebuyers, who are buying for investment and tax purposes, hail from northern Europe, especially from Germany, the UK, France, and Switzerland. Milan and Rome have been considered to be the best markets for an investor with a pure investment standpoint. Investors’ focus is more inclined towards investing in city market, both for income opportunities via short-term rentals and for the convenience of urban living.
  • The market has witnessed roughly about a 17% m-o-m jump in the homebuying requests, which is the result of a new tax regime which the government rolled out in 2017. It allows individuals who set up residence in Italy an annual flat tax of €100,000 (US$112,886) on foreign-earned income and €25,000 for family members. This new tax scheme has also drawn the interest of foreigners, and Italians who have lived as expats abroad, as it now provides them with more favorable terms.
  • The average interest rate for new housing loans in Italy are as low as 2%, which entices various investors. The average price of new houses is about 24% higher as compared to that of existing houses. Rise in new-build properties prices, short-term rental prices and residential construction activities create a positive market outlook.
UK Care Homes
  • With the increase in life expectancy and consequently an increase in the ageing population, the demand for senior housing is seen to have grown all over Europe (the number of people aged 75+ is expected to increase by 27% over the next 10 years). This trend is expected to continue at least for a couple of more decades; and even before the ageing population has peaked, property fundamentals like occupancy rates and fees for senior housing are at record highs.
  • There is a shortage of senior housing in most of Europe, and as the wealth of seniors (through increasing pensions) is growing, the demand is growing as well. This has attracted institutional capital over the last few years, but this is just the beginning, and the opportunity has not been capitalised with sufficient long-term capital.
  • Senior housing offers an attractive yield premium of 150 bps over standard residential investments, having compressed from 4.5% in 2016 to 4.0% in 2018, while maintaining a stable spread with respect to residential & office yields. This supplemented by decreasing yields for retail and office, is making the asset type more enticing.
  • Senior housing is also attracting investors due to the nature of the business, which tends to have high occupancy rates with average stay of six years. Income is resilient and there is also a downside protection by way of conversion to a residential and co-living property.

Funds in the Market

Strategy Institution Regional Focus Asset Focus Status Fund Size (mn)
Value-add Ares Management Corporation Pan-Europe Under or over managed assets in complex situations Final Close € 1,780
Opportunistic Harrison Street US Diversified Closed $ 1,300
Value-add, Opportunistic AG European Fund Western European Diversified First Close € 1,070
Value-add, Opportunistic Oak Street Real Estate Capital Pan-Europe Diversified First Close $ 1,000
Opportunistic Nuveen Real Estate US Multifamily & Logistics Raising $ 1,000
Value-add Blackrock Pan-Asia Diversified Raising $ 500
Value-add Castleforge Partners UK Diversified Raising £ 375

Recent Transactions

Snapshot of Key Deals
Asset Name Buyer Seller Asset Type Location Price (mn)
Student Accommodation Portfolio DWS Real Estate Vita Group Student Accommodation UK £ 600
Logistics Portfolio Prologis Inmobiliaria Colonial Logistics Spain € 425
Office Portfolio NH (L’Etoile Properties) Icade Office Paris € 365
Mixed Portfolio Cerberus Capital Banco Sabadell Mixed Spain € 314
Office Property Brockton Private Investor Office London € 117
Office Property DIC Asset Real IS Office Berlin € 111
Office Property Fidelity International NBIM and AXA IM Office Paris € 98
Asset Name Lender Borrower Asset Type Location Loan Amount (mn)
Revolving Credit Facility Barclays, HSBC, National Westminster, Wells Fargo Helical Credit Facility UK £ 400
Student Accommodation Portfolio Aviva Investors Undisclosed Student Accommodation UK £ 236
PRS Assets Scottish Widows The PRS REIT Residential UK £ 150
EDEN Residential Tower pbb Deutsche Pfandbriefbank Immobel Residential Germany € 110
Office Building in Budapest pbb Deutsche Pfandbriefbank Warburg-HIH Invest Real Estate Office Hungary € 52
Retail Park in Seville Barings JV between Kronos Investment Group and a Global Investment Management Firm Retail Spain € 40

Key Indices

Key Indices 31-08-2019 YTD 1-YEAR 3-YEAR 5-YEAR
MSCI World Real Estate 228.12 18.1% 8.9% 11.1% 16.6%
STOXX Global 1800 Real Estate 283.93 18.0% 9.1% 12.0% 17.7%
STOXX Europe 600 Real Estate 171.05 8.9% (5.1%) (5.1%) 9.6%
Dow Jones US Real Estate 363.42 22.8% 10.5% 11.9% 25.9%
STOXX APAC 600 Real Estate 254.99 10.1% 6.0% 9.1% 3.8%
Property REITS - Europe 31-08-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 49.72 (14.5%) (34.8%) (49.9%) (55.1%)
Office & Industrial 283.93 18.0% 9.1% 12.0% 17.7%
Property REITS - US 31-08-2019 YTD 1-YEAR 3-YEAR 5-YEAR
Retail 350.96 (13.9%) (25.1%) (41.2%) (28.4%)
Office 330.94 14.1% (5.0%) (11.8%) (0.9%)
Healthcare 198.57 22.0% 18.1% 1.2% 12.2%
Industrial 441.71 36.7% 22.9% 51.0% 107.4%
Diversified 280.34 33.5% 20.0% 40.7% 55.8%


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