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European Investment – June 2020
S P OT L I G H T
Savills Research
European Multifamily
Photo by Ján Jakub Naništa on Unsplash
European multifamily investment Covid-19 impact Outlook
European Multifamily
Despite the overall slowdown in investment activity due to Covid-19,
multifamily investment volumes in Q2 are expected to rise in half of the
markets that we monitor
Multifamily is becoming core
European multifamily investment activity is expected to remain strong in Q2 driven
by investor confidence in the sector's fundamentals
Multifamily sector second largest Lendlease of Elephant Park in London and of the sector: rising urbanisation, smaller
after offices in some markets Invesco’s forward funding deal of Aubrey households, unaffordable house prices and
• Multifamily investment activity in the Place (€85m) in Milton Keynes. rising occupier demand for flexibility and
first quarter of 2020 was close to €11.6bn • Despite the slowdown in investment services. Additionally housing is a basic need
in the 12 markets that we monitor, already activity during the second quarter, resulting and therefore demand for rental remains
27% of last year’s total, which was the from strict lockdown measures across Europe stable or even rises in periods of economic
second strongest year on record, at €43.2bn. that aimed to control the spread of Covid-19, uncertainty. Supply of this type of product
Multifamily investment accounted for 18% of we anticipate at least another €10.3bn to have is low in most markets, and construction
total activity. In Germany it was the largest been deployed in the multifamily sector by activity is restricted by high land values and
sector, 1.1 times the office total. Germany was the end of June, with half of the countries construction costs, as well as limited labour
once again the largest market capturing 70% expected to achieve significantly higher availability.
of the total with over €8.2bn of transactions, volumes compared to the previous quarter. • The main considerations for multifamily
followed by the UK (€947m) and Sweden • The average prime net yield has remained investors following the health crisis are
(€699m). stable on a quarterly basis at 3.35% and expected to be around affordability and real
• Some of the largest transactions of 50bps below the prime office yield. Yields are rental growth prospects. Our data show that
operational assets were the sale of the Amber stabilising in most markets, after a significant rent collection rates for residential portfolios
Portfolio to Heimstaden AB (€375m) in the inward yield shift trend over the past five in April were above 80% on average in our
Netherlands, the acquisition of Pioneer Point years. In Q1 2020 prime yields moved in key markets. The ability of low income
by Realstar and QuadReal Property Group only in Dublin from 3.75% to 3.6% . Prime households to meet their rental obligations
(€112m) in the UK and early in the year the achievable yields for newly built income will be tested over the next few months as
sale of the €1.3bn residential portfolio by producing assets are the highest in Warsaw government support measures start phasing
Round Hill and Blackstone to Heimstaden in (4.4%). out. This will eliminate positive rental growth
Czech Republic. Nevertheless, the majority expectations for this year and next, while
of investors expanded their exposure in the Impact on pricing has been minimal some moderate downward rent adjustments
sector through forward funding deals such but rental growth expectations have to may also occur.
as the acquisition of a 395 (142m) unit project be postponed
and a 400 unit project (€110) in Madrid by • The minimal impact of the health Outlook - Multifamily is moving from
Hines and Ares Capital respectively, the crisis on investor appetite for multifamily alternatives to core
forward funding deal (€92m) by CPPIB/ is supported by the strong fundamentals • We expect investor interest in the
European multifamily investment Q1 2020 by country
1% 1% 1%
1% 2%
2%
4%
4%
Portugal
Belgium
2.8% to 4.4%
Poland Is the range of prime net achievable yields
Ireland across the 12 markets that we monitor
6%
Norway
Denmark
Finland
8%
Netherlands
France
Spain
70% Sweden
UK
Germany
Source: Savills Research
savills.com/research 2European Multifamily
18%
The share of multifamily investment in
Q1 2020. The highest shares were seen in
Germany (33%) and Ireland (22%).
Prime net multifamily yields for operational assets
Close to
€11.6bn worth of 5.00%
multifamily assets
were transacted 4.00%
across Europe in Q1
2020 3.00%
2.00%
1.00%
0.00%
Warsaw
Berlin
Amsterdam
Oslo
Dublin
London
Stockholm
Madrid
Paris
Copenhagen
Helsinki
We anticipate
multifamily
investment in the
second quarter to
be at least around 2020 Q1
€10.3bn
Source: Savills Research
multifamily sector to remain supply of operational assets, we focusing on medium income
solid in the coming months. It is expect most investment deals product, which can offer stable and
difficult to predict the levels of to be driven by forward funding sustainable income streams. We
market activity in Q3 and Q4 and development opportunities. expect prime achievable yields to
we may see some volatility, until • From a pricing perspective, remain broadly unchanged until
there is a better understanding investors still have the same the end of the year and we observe
In Q1 Germany was of how Covid-19 will affect our return requirements as they did price reductions of no more than
the largest market lives. However we believe that at the start of the year. Where we 5-10%.
capturing 70% of competition for the few prime are seeing an impact on pricing • Multifamily cannot be
the total volume located development sites or is therefore less about changing considered anymore an alternative
completed assets that are coming return requirements and more investment. It has become an asset
on the market will remain strong. about a softening of underwriting class suitable for core strategies,
The amount of capital targeting assumptions as companies particularly in markets such
multifamily assets has remained strategize on the rental levels and as Germany, Netherlands and
unchanged since the beginning of occupancy rates in a post-pandemic the Nordics, where volumes are
the year and investor intentions world of occupational real estate. comparable or even higher than
indicate that more capital will be Underwriting is also softening offices. The sector is also maturing
allocated to the residential sectors. because of rising lending margins rapidly in Spain and Ireland where
The average prime Also lenders are seeing multifamily and more pessimistic rental last year’s volumes were two and
net yield remained as a safe haven, because of rental growth assumptions. Investors five times higher compared to the
stable in Q1 at 3.35% income stability. Due to limited are adjusting their expectations, five year average respectively.
Share of multifamily investment is becoming significant in some markets
100% 35%
33%
90%
30%
80%
70% 25%
22%
60%
20% 20%
50% 18% 18%
Residential rent 15%
40%
collection rates 12%
12%
were above 80% on 30% 10%
average across the
20% 7%
key markets 6% 6%
5%
4%
10%
0% 0%
Poland UK France Finland Sweden Netherlands Grand Total Spain Norway Ireland Germany
Multifamily Other Commercial Share of Multifamily
Source: Savills Research
3European Multifamily
Average prime European multifamily yields offer an attractive yield spread RENT REGULATIONS;
over the long term bond yields DOUBLE-EDGED SWORD
5.00%
The shift of the population towards
renting has been triggered by rising
4.00%
3.35%
house prices. However, over the past
five years rental values have also been
rising fast, reaching unsustainable
3.00%
levels compared to what the average
household can afford to pay. We could
2.00%
see rent regulations intensifying in
the future as there is a burning need
1.00% 0.31%
for affordable housing across highly
urbanised cities.
Public authorities have introduced
0.00%
2012 2013 2014 2015 2016 2017 2018 2019 2020 various degrees of regulatory
measures with regards to upward rent
Multifamily Average EU Bond yields
reviews. In Berlin there is a rent freeze,
Source Savills Research, Focus Economics in Dublin they cannot increase by more
than 4% pa, in other German cities a
Covid-19 implications on multifamily
local average is used as a benchmark,
in Denmark there are limitations for
properties built before 1991, while
The health crisis may iimpact the quality of demand in Amsterdam developers have to
provide at least 40% social housing.
D espite the uncertain
long-term implications
of the health crisis,
L ower demand for home
ownership and potential
house-price slowdown is
satellite cities to major
urban centres. But
amenities, mix of uses and
All these measures are aiming
to reduce speculation in a socially
sensitive sector, where most
Covid-19 should not leading to a gradual shift connectivity are expected governments are struggling to provide
affect the fundamentals of developer focus from to remain important. the level of social housing required.
of demand and supply.
Demand for multifamily
should remain solid
BTS (Built-to-sell) to BTR
(Built-to-rent) creating new
investment opportunities
U sers may expect from
multifamily apartments
more private space, some
Tight rent regulations that seek to
protect tenants are often criticised
for causing the adverse effect, as
offering long-term, even in traditionally owner- outdoor space, storage or they deter new development activity.
inflation hedged income occupier markets, such as shared working areas when Measured rental growth controls on
streams to investors, in Eastern and Southern working “from home”, the other hand provide security to
especially institutional Europe. if they cannot afford an both tenants and investors, who know
ones (pension funds, REITs
etc) who are seeking these T he main consideration
for multifamily
office space in their own
apartments.
what to expect.
In Finland instead of restrictions,
quality income streams.
C ovid-19 has slowed
down construction
investors following the
health crisis and the
economic downturn that
W e also expect
higher demand
for community services
there is a comprehensive housing
allowance system maintained by
the state owned Kela (The Social
activity, which will intensify this is expected to cause, and on-demand services Insurance Institution), while in Ireland
the shortage of housing is affordability and real in the managed rental and Portugal local authorities are
supply in the short term. rental growth prospects. sector and further price shifting to social leasing agreements
This means that the Rents are not expected to segmentation to meet the with developers.
residential demand and increase over the next 18 needs of different levels of
supply imbalance that months in most locations. affordability.
has been characterising
the large European urban
centres will continue to
C ovid-19 may affect the
quality of multifamily
demand. Apartments
O verall we expect
Covid-19 to accelerate
changes in the housing
persist. in multifamily blocks market and create
S hift to renting is
expected to remain
strong and even intensify
in central areas may
be less desirable in the
short term and people
further diversification
of product based on
local demographics
due to the negative might look to move in and economics. People 75bps
economic effects less densely populated have different needs and lower on average were
of Covid-19. Rising areas. This could lead to preferences depending prime net yields in Q1
unemployment risks and some new investment and on their personal status, 2020 compared to five
tighter lending conditions, development multifamily income level, age and years ago
will make buying a house opportunities in well- profession.
harder, especially for first connected peripheral
time buyers. locations or secondary,
savills.com/research 4Savills Commercial Research
We provide bespoke services for landowners, developers, occupiers and investors across the
lifecycle of residential, commercial or mixed-use projects. We add value by providing our clients
with research-backed advice and consultancy through our market-leading global research team.
Research European Investment
Eri Mitsostergiou Marcus Roberts Aurelio Di Napoli James Snaith
European Research Operational Capital Markets Operational Capital Markets Operational Capital Markets
Director Director Director Director
+30 (0) 694 650 0104 +44 (0) 7807 999 187 +44 (0) 78 1433 9468 +44 (0) 7968 550 439
emitso@savills.com mroberts@savills.com aurelio.dinapoli@savills JSnaith@savills.com
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