According to CBRE, the big three drivers which will drive the further growth of the European multifamily sector are:
- deepening diversification by commercial real estate specialists into the institutionalised residential sector
- expanding investment ambitions of seasoned domestic multifamily investors and owners into overseas markets; and
- investor and owner diversification within markets (in addition to across markets).
Taking each in turn, CBRE says traditional commercial real estate investors are increasingly diversifying into residential. CBRE Research explains:
“This is particularly evident in emerging markets like France, where domestic investors are now returning to the residential sector in force. This has also been aided by tax incentives, as residential funds in France are exempt from property tax for 20 years. In the UK, shopping centre owner INTU Properties, has announced plans to develop 5,000 rental homes around its sites to hedge against the ailing retail sector.”
Secondly, across all markets domestic investment will be combined with increasing activity from international capital, which is gradually becoming more comfortable with owning and operating multifamily property outside of their home countries.
In 2018, cross-border multifamily investment in Europe accounted for 30% of total investment, up from 17% in 2011, according to CBRE data. This was evenly split between European institutions investing outside of their home market, and other global capital targeting opportunities in Europe. CBRE Research explains:
“Many European institutions are increasingly targeting opportunities in markets with similar regulatory frameworks to their home market. This allows access to higher yielding assets and diversifies portfolios. One of the largest deals in Germany in 2018 was Industria Wohnen’s sale of the Century portfolio to Danish pension fund PFA for approximately €1bn. And Sweden’s Heimstaden recently purchased a €1.4bn portfolio in the Netherlands from Roundhill, comprising nearly 10,000 units.
“North American capital is also increasingly targeting Europe. In the UK, two Canadian institutions (PSP Investments and Quadreal Property Group) recently partnered with Unibail—Rodamco—Westfield to deliver 1,200 rental homes in London. In Spain, Blackstone took control of Spanish listed housing provider Testa, to become one of the largest housing landlords in the country.
“And CBRE Global Investors agreed a €870m joint venture with Madison International Realty to buy a 6,458—unit portfolio managed by Azora. In the Netherlands, Canadian Capreit acquired a €108m portfolio from CBRE Global Investors, who in turn purchased a €400m portfolio in Amsterdam from Orange Capital Partners and Heitman.”
Thirdly, as well as diversifying across markets, investors will also continue to diversify within markets. In Germany, for example, there is an increasing focus on markets outside of the main seven cities.
In the UK, investment is continuing to spread across regional cities. And in Ireland, Dublin was the epicentre of investment, but the secondary cities of Cork and Galway are now seeing increased activity.