North American investors – which deployed €6.7 billion last year into the European multifamily sector – are a mix of private equity-type investors from the US and REIT-type vehicles from Canada, which both see strong fundamentals for further growth of the sector in Europe.
CBRE Research explains:
“US investors have the experience from a home market where multifamily has become the largest investable asset class in the real estate market. Within Europe, institutional investors and fund managers are increasingly comfortable with investing in countries outside their home markets.
“UK investors are the most active cross-border European investors. Investors from the Nordics and Germany have expanded their scope geographically and are increasingly active abroad. Investors from these two regions are often listed funds (e.g. Vonovia, Heimstaden) with a long-standing track record and are looking to diversify internationally after having built sizeable portfolios in their home markets.”
The most active cross-border investors in European multifamily in 2018 were REITs and listed funds, according to CBRE, largely driven by the consolidation of the multifamily market as illustrated by growing M&A activity. Three prime examples of M&A deals by listed funds in 2018 were the takeover of Austrian investor BUWOG by Germany-based Vonovia, the Swedish platform Victoria Park acquired by Vonovia through a consortium, and the acquisition of a majority stake in Brack Capital by Adler — also based in Germany.
The rise in M&A activity is also visible in the delisting of listed funds by private equity firms. As the sector in Europe matures, this consolidation trend is set to continue.
The European cities that are attracting most cross-border capital are Berlin, Copenhagen and London, according to CBRE. The top 10 features two types of cities: cities with rapidly growing multifamily markets such as London, Madrid and Dublin; and cities with a longer established history in multifamily investments such as Berlin, Copenhagen and Stockholm.
The combined share of investment that the top 10 cities attract is just 28%, CBRE’s data shows. There is also a lot of investment activity outside of the gateway markets, with smaller cities also offering attractive investment opportunities.
CBRE Research added:
“Due to the granular nature of the multifamily sector, one of its key features is the large share of portfolio transactions relative to other sectors in the real estate market. Cross border investors have allocated 62% of their capital towards acquiring residential portfolios, motivated by the need for scale in order to establish platforms quickly and drive efficiencies.
“It can also be difficult for cross-border investors to compete with domestic investors for new developments as developers tend to sell off single-assets to domestic investors they have established relationships with.”