‘Great prospects for Student Housing in 2020’

Student housing is one of the top four sectors when it comes to investment prospects in 2020 worldwide because demand continues to grow faster than supply, according to a new study carried out by market research and advisory specialists BONARD.

Student housing is one of the top four sectors when it comes to investment prospects in 2020 worldwide because demand continues to grow faster than supply, according to a new study carried out by market research and advisory specialists BONARD.

Last year the sector continued its record growth trajectory, booking over E9 bln in international transactions, excluding the US. The big global players in real estate decided it was time to invest, which resulted in 105 transactions in Continental Europe, the UK and Australia.

In Europe, including the UK, over 700 companies have now invested in the sector and last year saw the completion of 142 PBSA projects with 43,655 beds.

Average transaction yield rates ranged from 3.7% to 6%, with a number of significant deals, such as the takeovers of the Atira, Liberty Living and Urbanest portfolios.

Investor interest has been strong because demand for student housing has been growing at faster rates than demand for any other asset class, according to BONARD, and because it is a counter-cyclical asset class. Its growth trajectory is forecast to continue regardless of economic slowdowns or even recessions.

Demand has been and continues to be driven by the constant growth in mobile and international student numbers. In the last ten years, international student numbers have increased by 27% in the UK, by 53% in Continental Europe and by a massive 92% in Central and Eastern Europe.

Continental Europe saw an increase of 4.3% last year and the rate of growth shows no sign of slowing down. 

EU cities feature at the very top of the global rankings for numbers of foreign students. London has 120,000, Paris 77,000, Vienna 52,000, Madrid 46,000 and Berlin 37,000, just to give a few examples.

‘The student housing asset class has been maturing to a stage of transparency, returns and liquidity that offer sufficient security and confidence for many private and institutional investors,’ said Samuel Vetrak, CEO of BONARD.

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RCA: iconic Grand Paris infrastructure project propelled France to record €42 billion in 2019 real estate investment

The iconic Grand Paris infrastructure project was a pivotal factor in a record €42 billion in real estate investment transactions in France last year, global data provider Real Capital Analytics’ European Capital Trends 2019 research shows. The French capital also overtook London for the first time in 2019 to debut as the largest metropolitan market in Europe by value of deals.

Total real estate investment transactions in France were €41.6 billion in 2019, 7% higher than in 2018 and a new record. Paris (€28.4 billion +9% year-on-year) overtook London (€25.7 billion -22% YoY) in 2019 in transactions volume for the first time to debut as Europe’s largest metropolitan market.

More than €7 billion was spent in the Paris office market in the last three months of 2019, contributing to a total of more than €20 billion in this property sector for the year overall. Parisian offices were Europe’s number one real estate asset class by deal volume in 2019 with cross-border buyers accounting for more than 50% of transactions. South Korea investors were the biggest cross-border source of capital.

RCA’s Hedonic Series shows that strong demand pushed down Paris office yields by an average of 20 basis points in the fourth quarter of 2019 versus a year prior. Yields also compressed by a similar amount in the leading German office city markets and were down in London for the same period.  

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“Paris has received a huge boost from the Grand Paris infrastructure plan, as domestic and international investors position themselves in advance of the first set of major station openings on the network in 2024. Parisian offices became Europe’s largest single property investment sector last year, with 50% of the capital coming from overseas, and South Korean investors alone spending €4 billion on these assets. The strong competition and high prices being paid in Paris also appear to be playing a part in diverting domestic investors to other centres with resilIent occupier sectors, notably France’s second-largest commercial real estate market Lyon, where investment volume doubled in 2019 compared with the previous year.” 

According to RCA’s ECT 2019 report, the top three buyers in the French market in 2019 were: Primonial REIM, Amundi and SCPI Priopierre.

The largest single property deals in the French market in 2019 were:

  1. Lumiere in 12th arrondissement – acquired by joint-venture between Hanwha Investment, Samsung SRA and Primonial REIM for €1.2b.
  2. Tour Majunga in La Defense – acquired by Mirae Asset and Amundi for €850m
  3. Crystal Park in Neuilly-sur-Seine – acquired by La Francaise on behalf of Samsung Securities for €691m.

james.wallace@realassetmedia.com

CBRE: Continental investment volumes up 2% to €248 billion in 2019

In 2019, commercial real estate investment volumes in Continental Europe reached a record high of €248 billion, according to CBRE data. Investment volume was up 2% compared to the €243 billion recorded in 2018.

Across the whole of Europe (including UK and Ireland), investment volumes totalled €315 billion in 2019, down -2% from €322 billion in the previous year. The small decrease in 2019 was due to a-19% decline in UK volumes reflecting investor caution in the face of ongoing political uncertainty. Germany recorded the largest investment volume for the second year in a row. France, the Netherlands, Sweden, Italy, Ireland, Austria and Portugal all also posted historic highs in 2019.

The market environment remains favourable towards 2020 due to positive investor sentiment and lower interest rates.

Turning to the European industrial and logistics sector, investment reached an outstanding total of €14 billion in Q4 2019, an increase of 21% YoY and 83% QoQ, according to CBRE. Logistics volumes continued to outperform the wider property market in 2019, with a rise of 3% for the year to €35.3 billion, continuing the Logicor-adjusted upward trend.

The best performers in 4Q19 were France, where volumes were up 160% YoY, Austria where they doubled and Italy, up 89%. France leapfrogged the UK, (which recovered to €2.8 billion in the quarter), to become the largest European market, with volumes of €2.9 billion. Germany was 3rd with €2.7 billion and Netherlands 4th with €1.1 billion, CBRE data shows.

Capital flows into European logistics in 2019 were 3% higher at €35 billion and for the 4Q 2019 alone, the total of €14 billion was the highest since the €20 billion peak when Logicor was acquired in Q2 2017. There was a 16% rise in 12-month European cross border logistics investment to €7.7 billion and a 9% increase in North American flows to €7.7 billion. Domestic volumes were stable at €15.7 billion and remained the largest category. With little involvement in the major portfolio deals, Asian investor flows fell 14% to €2.4 billion.

james.wallace@realassetmedia.com

‘Poland is the new Germany’

More international capital is flowing to CEE countries and the office sector continues to be investors’ favourite target, accounting for an unprecedented level of interest.

Poland is set to be the new Germany, attracting investors because of its strong economic growth but also because of its polycentric nature, Katarzyna Zawodna-Bijoch, President and CEO, CEE, Skanska Commercial Development Europe, told The Real Estate Day.

International capital has moved beyond Warsaw and is targeting Poland’s many strong regional cities.

Katarzyna Zawodna-Bijoch, President and CEO, CEE, Skanska Commercial Development Europe and Simon Wallace, Head of Research, Europe, Alternatives DWS discuss the current opportunities in the CEE Real Estate investment market with Richrd Betts, Group Publisher at Real Asset Media.
Filmed at the International Investors Lounge, EXPO REAL 2019 by Real Asset Media

‘We were the first to go into Poland’s regional cities,’ she said. ‘Back then it was a brave decision, but now no-one doubts that it was the right one. They are attracting companies because they offer such a wide pool of well-educated talent’.

The strengths of what used to be called secondary cities are now widely recognised.

‘Investors are very confident now about Poland’s regional cities, which also offer a 100-150 bps premium to what you would get in a German city,’ said Simon Wallace, Head of Research, Europe, Alternatives, DWS. 

There is plenty of life in CEE beyond Poland, Zawodna-Bijoch said: ‘As the biggest market it attracts most of the interest, but the country that offers the best opportunities now is Romania. There is great quality product, 2.5 mln m2 of modern office space and the new Government is keen on making the market more transparent. Romania is a real rising star’.

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London landlords focus on evolving service expectations as occupiers’ transition to customers

Understanding occupier expectations and priorities remains the biggest London-related concern, followed by understanding what services occupiers/customers now expect, according to a survey of London’s largest landlords and investors by Knight Frank.

The third most significant concern was understanding where the next wave of demand is likely to come from. The survey was based upon London’s landlords and investors who together have office holdings of nearly 25 million sq ft, representing just over 10% of all office stock in Central London. A further 92% said they would buy commercial property in London during 2020, while 40% said they would sell commercial property in London this year.

Faisal Durrani, Head of London Commercial Research explains:

“The need to attract and retain talent is increasingly central to operations as organisations work harder to attract and nurture the best. This desire is translating into more discerning occupiers. They have clear expectations and visions for the type of space they occupy as offices become windows into an organisations’ culture, driving demand for ever-more customised and personalised work environments. And so, as tenants’ transition to being ‘customers’, landlords are responding.”

More than three-quarters of respondents (78%) said they would be likely or very likely to ‘factor in workplace wellbeing during refurbishment and/or development’. When it comes to specific amenities, ‘providing end-of-trip facilities’ emerged as the top provision by respondents, while ‘offering high-speed broadband through a direct fibre connection’ was next. The improvement of digital connectivity emerged as a big feature that respondents would be likely, or very likely to consider during refurbishment, or development. When it comes to expansion, 73% of those surveyed said they would be likely, or very likely to expand their portfolios in London over the next 12 months, providing further evidence of the resilience of the market and the confidence in its continued expansion.

In third place was the ‘provision of flexible workspace and meeting rooms within the building’. On the flexible office market’s rise, 43% said it has had ‘some impact’, and that they have changed their offering to offer a greater level of amenities and services. A further 10% say they are considering offering their own flexible office brand.

When asked about the outlook for office rents, 73% of respondents said they felt rents in both the City and West End would be likely, or very likely to rise during 2020. Responses on the outlook for yields was more mixed, with 40% feeling the status quo would be largely maintained, while 37% believe there would be some yield compression in 2020.

Faisal Durrani added:

“The results of our survey demonstrate the impact the evolving nature of customer requirements is already having on landlords, developers and investors. In the context of London, it appears as though the market has already begun to respond to next generation issues such as workplace amenities and staff wellbeing, however there are clear challenges around capital expenditure for landlords and investors eyeing up refurbishment opportunities.

“Positively, as a greater awareness of the amenity driven market that has emerged in London spreads, customers stand to benefit from enhanced product offerings; however, the dearth of supply may curtail the speed at which the office landscape in London transforms. For now, landlords, particularly those with scale, appear best placed to adapt their portfolios and command rental premiums over their peers as ever more discerning customers are comfortable spending more on must-have extras.”

james.wallace@realassetmedia.com

RCA: German real estate investment transactions hits all-time peak at €76 billion in 2019

Real estate investment transactions in Germany hit a record of €76 billion in 2019, with the final quarter of the year recording the highest volume of quarterly deals ever done in any market in Europe, global data provider Real Capital Analytics’ European Capital Trends 2019 research shows.

Germany retained its position as the largest real estate investment market in Europe in 2019. In the fourth quarter of last year, German real estate investment transactions totalled €32.8 billion, the largest quarterly volume in any market in Europe ever. Record investment volumes were recorded in Munich (€10.1 billion +56% year-on-year) and Berlin (€13.4 billion +32% YoY) in 2019, although Frankfurt (€9.0 billion -24%), together with London, were the only two markets in the top seven in Europe to see a fall in the total value of transactions.

More than €13 billion was spent on German offices in the fourth quarter of which €3.0 billion was in Munich; €2.8 billion in Frankfurt and €2.1 billion in Berlin. Average central business district office yields in these cities continued to fall over the year and are at record lows. Despite the residential rent controls imposed in the second half of 2019 in Berlin, more than €1.0 billion of apartments traded in the last three months of the year. The RCA Hedonic Series shows pricing for Berlin apartment properties may have peaked and the value per unit edged down 2.5% over the year. In contrast, the city’s office pricing goes from strength to strength with average values increasing 13% year-on-year in 2019. 

Germany was the biggest real estate investment destination for cross-border capital flows from European players in 2019 as it was in 2018. The top trade route was UK money moving into Germany and €3.0 billion was spent from this source last year.

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“German real estate pulled in record levels of capital last year as it remains an attractive alternative asset class compared with many fixed-income securities. On the occupier side, the services sector of the economy is doing well, supporting the take-up of office space, and the investment market for apartments held up very well, despite a deteriorating macroeconomic outlook in Germany.” 

According to RCA’s Europe Capital Trends (ECT) 2019 report, the top three buyers in the German market in 2019 were: Commerz Real, Union Investment and Blackstone.

The largest deals (single assets only) in the German market in 2019 were:

  1. Die Macherei office in Munich – acquired by Universal on behalf of BVK for €630 million
  2. Die Welle office in Frankfurt – acquired by Invesco for €620 million

james.wallace@realassetmedia.com

‘More overseas capital targeting CEE offices’

More international capital is flowing to CEE countries and the office sector continues to be investors’ favourite target, accounting for an unprecedented level of interest.

More international capital is flowing to CEE countries and the office sector continues to be investors’ favourite target, accounting for an unprecedented level of interest. This is one of the main findings of the CEE Investment ReportThriving Metropolitan Cities, published by Skanska, Colliers International and Dentons.

Office stock in major CEE cities has been growing and is now 21.8 mln m2, but it will increase by a further 20%, reaching 26.5 mln m2 in 2021. This reflects the region’s strong economic growth, which outpaces that of Western Europe, and its success in attracting multinationals, partly due to the availability of a highly skilled workforce. 

Keynote presentation on the CEE Real Estate Market given by EXPO REAL CEE Keynote: Tom Leahy, Director of Market Analysis, EMEA, Real Capital Analytics.
Filmed at the International Investors Lounge by Real Asset Media..

Capital has come into the region from all corners of the world. This year South Korean investors have been the most active in the CEE real estate market, but there have also been inflows from Singapore, the Philippines, China and Malaysia. A favourable exchange rate and higher yields are the main attractions, as well as the quality of the office stock available.

Since 2013 the CEE region has accounted for less than 3% of all capital spent by Asian investors outside their continent, but this year that figure jumped to 9.5% and it is likely to grow further. 

‘As the biggest office developer in the region, we have been observing how the flow of foreign investors has changed,’ said Adrian Karczewicz, Head of Divestments CEE, Skanska Commercial Development Unit. ‘Europeans, led by the Germans, used to be the biggest group of investors looking for prime assets in our region but new players, especially from South Korea, are becoming more active because they know that in CEE they can find best-in-class, future-proof office buildings and higher returns on investments’. 

The growth and transformation of CEE cities is the other focus of the report, drilling down into what makes a town an attractive investment destination. CEE cities dominate the list of the fastest-growing metropolitan areas in the EU, accounting for 16 cities in the top 20. Prague is second on the list, just behind Dublin, and is followed by Wroclaw which has recorded spectacular productivity growth. 

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RCA: European investment activity finished 2019 strong to close €308 billion

Annual investment activity in European real estate reached €308 billion in 2019, down 2% over the previous year, according to Real Capital Analytics, including €111 billion in the fourth quarter.

The final quarter of 2019 was the second most active quarter on record, but activity lifted European real estate investment to only a slightly softer finish overall for 2019, after a dismal start to the year. However, as the Brexit drama came to a conclusion, the UK recorded its weakest yearly deal volume since the EU membership referendum took place in 2016, Real Capital Analytics’ European Capital Trends 2019 report shows.

UK investment transactions at €58.7 billion (£49.3 billion) in 2019 were down 16% year-on-year, although transactions rose 14% to €20.3 billion in the fourth quarter compared with the same period a year earlier. Deal volume for December was 60% higher than the monthly average investment volume for the UK over the past five years and Central London office yields moved in by 20 basis points in the second-half to a two-year low.

Investment deals in the London market totalled €25.7 billion (£21.6 billion) last year, a 22% fall over 2018, to relegate the city to second place among European metropolitan markets, behind Paris, for the first time.

London is still the first-placed European destination for overseas capital, but cross-border deal volume was down 33% year-on-year in 2019. The UK was the biggest recipient of North American investment last year, but, at just over £8.5 billion, volume was around a half of the level recorded at the peak of the market in 2015.

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“At the start of 2019, expectations that interest rates would rise contributed to the lowest level of European real estate investment activity for a first half since 2014. As these concerns dissipated with the ECB keeping rates low to stimulate growth, transactions came roaring back, particularly in Germany and France, which both experienced a record year. But the UK has danced to a different Brexit tune in the past four years, which together with a meltdown in the retail sector, has weighed heavily on investor sentiment towards the market. Investment levels were unusually high in the UK in December, however, and the political clarity secured through Boris Johson’s emphatic electoral win presages a better 2020.”       

According to RCA’s ECT 2019 report, the Top Buyers in the UK market in 2019 were:

  1. Unite Students REIT
  2. M&G Real Estate
  3. Citigroup
  4. LaSalle
  5. Legal & General

james.wallace@realassetmedia.com

Knight Frank: almost £50 billion of global capital to flock to London in 2018

Global investors have increased the total capital targeting London commercial assets to £48.4 billion, a 21% rise on 2019 and £2 billion higher than 2018, according to the latest research from Knight Frank, as international investors target the capital’s high-yielding office market, following the decisive 2019 UK General Election result.

However, with just £2.3 billion of buildings for sale, investors will face strong competition, which is expected to drive values higher in 2020. London investment activity fell 15% to £13.9 billion in 2019, down from £16.8 billion in 2018, as Brexit uncertainty and a shortage of available assets constrained the number of deals, Knight Frank’s annual London Report shows.

Knight Frank’s annual London Report details the opportunities and challenges facing the capital’s real estate market in the year ahead. It reveals that in 2019 London investment activity fell 15% to £13.9bn, down from £16.8bn in 2018, as Brexit uncertainty and a shortage of available assets constrained the number of deals.

Nick Braybrook, Head of London Capital Markets at Knight Frank explains:

“Despite the fall in activity, London remained the second largest market for commercial office real estate investment in 2019, topped only by Paris and ahead of New York, Hong Kong and Berlin. London’s stability and global status is attracting international investors who see a competitive economy, strong occupier market and high office yields, compared with other global cities. We expect the sheer weight of international demand for London assets to push prices on, and we have already seen an increase in transactions as activity ramps up following the UK General Election result.

“International investors are attracted to London as a safe haven, offering political stability and positive growth prospects, as well as an attractive exchange rate and high yields. Office yields are amongst the best in the world and certainly the most favourable when compared to key European centres. In the City of London average yields are currently 4%, while in London’s West End they stand at 3.5%. Comparable yields in leading European cities such as Paris, Frankfurt and Amsterdam are 3%. And despite the prospect of London yield compression this year, office yields still outweigh most global bond offerings.”  

Faisal Durrani, Head of London Commercial Research added:

“One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity. New office development has not been able to keep pace with this demand, and almost half of the space currently under construction is already spoken for. This supply crunch is most significant for those businesses seeking large amounts of space. We are tracking 30 businesses seeking more than 100,000 square feet, yet there are currently just 16 buildings in London that can service these requirements.

“Indeed, the supply shortage is helping to underpin our rental growth projections over the next five years. These show that headline office rents will rise by 15.7% in core West End locations such as Mayfair and St. James’s by the end of 2024. Elsewhere, we forecast rents in the City core to grow by 20% in the next five years.”

james.wallace@realassetmedia.com

‘Adapting quickly to changing market trends’

CEE companies are adapting fast to changing market trends and demands, delegates heard at Real Asset Media’s Outlook 2020 – Europe & CEE investment briefing, which took place in Budapest recently.

CEE companies are adapting fast to changing market trends and demands, delegates heard at Real Asset Media’s Outlook 2020 – Europe & CEE investment briefing, which took place in Budapest recently.

‘We are mainly a shopping centre developer, but that business is very limited now, so we have changed our strategies to focus more on mixed-use, office and residential, while some of our competitors have gone into logistics,’ said Tom Lisiecki, CEO, Member of the Board, TriGranit. 

Luke Dawson, Managing Director & Head of Capital Markets CEE, Colliers International, Thomas Frater, Founder & CEO, Hussar & Co, Tom Lisiecki, CEO, Member of the Board, TriGranit, Zinaida Onczay-Vojnár, Partner & Head of Real Estate, CONSIDERO INVESTMENTS and Noah Steinberg, CEO & Chairman, WING discuss the outlook for the European Real Estate investment market with particular emphasis on the CEE Region.

Filmed at the CEE Outlook Investment Briefing, Budapest, February 2020 by Real Asset Media.

‘New asset classes are coming up that didn’t exist before, like residential for rent as an institutional business, so we want to get into this trend from a development angle’.

Alternatives are emerging but offices continue to be the most sought-after assets, with strong occupier demand and rising rents in the capital cities.

‘Offices are the dominant investment because demand far outstrips supply,’ said Luke Dawson, Managing Director & Head of Capital Markets CEE, Colliers International. 

‘Quality educated labour is still dramatically cheaper here than in Western Europe, so there is still a great advantage for companies to come here,’ said Noah Steinberg, CEO & Chairman, WING.

Competition for talent has contributed to a marked improvement in the quality of the buildings, as the work environment has become as important as salary in determining employees’ choices. 

‘The quality and amount of thought that goes into building now is incredible, because there is a tenant-driven demand for smart, healthy, sustainable buildings and for technological solutions’, said Zinaida Onczay-Vojnár, Partner & Head of Real Estate, Considero Investments. 

‘The buildings here are just as good here in Budapest or Bucharest or Warsaw as they are in Frankfurt or Dusseldorf, but rents have yet to catch up,’ said Thomas Frater, Founder & CEO, Hussar & Co. 

The trend for flexibility has also reached CEE, as tenants use the space differently. ‘A co-working occupier in our space can be a safety-valve for the operators, so we will have them in all our developments,’ said Lisiecki. ‘We use it as a plus to tell tenants that there is flexibility in the space, so that they can ramp up if necessary’.

Transformation is on-going and the region is moving in the right direction, said Steinberg: ‘We feel very strongly that we are in the right place. CEE will be the best part of Europe in many ways for the next decade’. 

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