Savills says although the start of 2019 has been much slower, activity is expected to pick up over the coming quarters as there are still portfolios awaiting to change hands. “We believe that 2018 was a turning point for the evolution of the European multifamily investment sector, with volumes surpassing even office investment turnover in some markets,” Savills wrote in a new report entitled Multifamily & Co-living.
“This confirms the rising investor interest in the sector, despite the fact that yields have already compressed significantly. The attraction of the long-term income streams and the anticipation of future rental growth on the back of rising demand for rental homes and restrained supply have been the main factors driving activity.
“We expect this trend to continue and we see the share of the multifamily sector rising up to 20% of the total investment activity in most markets in the medium term. This will be supported by the general shift of investors towards income producing assets and sectors whose fundamentals are driven by structural change rather than cyclical factors.”
In Denmark, Sweden, The Netherlands and Spain, the volume of multifamily investment was higher than offices, making it for the first time the most preferred property investment segment. What historically has been considered an alternative sector to commercial real estate now accounts on average for 17% of the total investment, up from a five-year average of 13%.
The markets with the highest annual changes in 2018 were France, which grew from less than €200m in 2017 to almost €3.2bn in 2018, Ireland where investment volumes increased tenfold to €1.1bn and Spain where the turnover jumped from less than a million to over €3bn last year.
The largest market was once again Germany with €15.1bn of turnover, the third highest volume of the last 10 years. Germany’s share dropped from 45% in 2017 to 36% of total in 2018 as most of the other countries registered a significant rise of investment activity in the sector.
From an investor’s perspective, the situation in the German residential market is still positive in view of the strained rental apartment markets and a continued shortage in new-build activity.
The market’s safe haven status remains intact despite additional regulatory hurdles. First time buyers in the German market were responsible for approximately 17% of the overall transaction volume. As per the previous two years, disposals of development projects accounted for a significant proportion of investment activity. Such transactions were responsible for approximately 26% of the transaction volume in 2018.
There were €2.7bn of transactions in the first quarter of the year, which was 52% down compared to last year., according to Savills. However, the further growth in the investor base, including a number of newly launched residential property funds that are only just beginning to build their portfolios, is likely to ensure above average transaction volume once again this year. Publicly-owned housing companies were rather active on the investment market.
They accounted for 29% of the total residential transaction volume in the first three months. This is in line with the strategy of local politics to increase the stock of the publically-owned housing companies. To reach this aim, they are not only increasing their own development activity, but also buying portfolios and newly-built properties.
Netherlands had its best year on record at just below €6.5bn, capturing 16% share of the eight countries’ total. This was 58.4% up from the year before. Spain witnessed a 238% rise of investment in the multifamily sector last year.
Sweden also had a record year in 2018 in terms of multifamily investment at €5.3bn compared to a five-year average of €4bn and accounted for 37% of the total investment activity.