Berlin was the top destination for cross-border multifamily investment in Europe between 2015 and 2018, followed by Copenhagen and London, according to new research from CBRE.
In the last four years, a total of €14.8 bn was invested in multifamily housing in the German capital, against €11.2 bn in Copenhagen and €7.7 bn in London, CBRE found.
The adviser says that international investors are putting record volumes of capital into multifamily housing in Europe, and that if this trend continues, the sector could become the largest real estate investment segment in Europe.
Between 2015 and 2018, €52 bn of cross-border capital was committed to European multifamily housing, CBRE’s report Capital Flows into European Multifamily Housing reveals, making it the second biggest investment sector in Europe.
While this is still far behind the $175 bn invested in multifamily housing in the US last year, Europe could be set to follow a similar trajectory, said Jos Tromp, head of research for Continental Europe at CBRE. ‘Multifamily housing in Europe is an evolving market with strong potential for further growth. There was a record €57 bn invested into multifamily housing in Europe in 2018, but this is dwarfed in comparison to the US, which has the most mature multifamily market in the world.
‘Investment into US multifamily grew from $22 bn in 2001, to $175 bn in 2018, making it the dominant real estate investment sector there. Given the strong investor appetite, and the continued supply-demand imbalance, Europe could follow a similar trajectory,’ he noted.
The strong growth in residential investment being witnessed in Europe is driven by changing regulation, demographics and structural fundamentals. While historically, investment in multifamily has been dominated by domestic investors, cross-border investment volumes have more than doubled over the last four years, with €17.8 bn invested in 2018, CBRE said.
While the top three cities - Berlin, Copenhagen and London - have established multifamily markets, or rapidly increasing numbers of purpose-built rental developments, the top 10 cities attracted only 28% of the total cross-border investment. This indicates that investors have broad geographical exposure, with smaller cities offering investment opportunities.
CBRE further found that large (listed) institutional investors and investment managers are the most active types of cross-border investors. European REIT-type investors with long track records have been increasingly diversifying internationally, having built sizeable portfolios in their home markets. North American capital is a mix of private equity-type buyers from the US and REIT-type vehicles from Canada.
Portfolio transactions are the preferred type of deal for international investors. CBRE found cross-border investors allocated 62% of their capital towards acquiring residential portfolios over the four-year period. This enables cross-border investors to deploy capital at scale and gives them ready-made operating platforms.
Thomas Westerhof, head of residential investment properties for Continental Europe, CBRE, commented: ‘Thematic drivers such as urbanization, housing affordability and growing preferences towards renting options are set to continue to drive investor interest into European multifamily housing. We expect there to be further internationalization and consolidation, as fund managers set up new dedicated pan-European investment vehicles and global capital is increasingly finding its way into the markets.
‘While the bulk of international investor activity to date has been through portfolio acquisitions and platform and M&A type deals, once these actors have a foothold in Europe, it becomes easier for them to grow their holdings with single assets and spread operations across different European cities.’