A record €97bn investment entered into multifamily markets across Europe in 2021 – in a ‘coming of age’ for the multifamily sector, according to a new report from JLL. The total represents an increase of nearly 50% on 2020 – the previous all-time high – confirming the multifamily market’s resilience against the volatility triggered by the Covid-19 pandemic.
JLL’s report highlights how the long-term fundamentals underpinning residential rental demand have pushed the market to a record breaking year. Continued urbanisation, changes to household formations, affordability challenges, persistent supply-demand imbalances, and strong city demographics have created structural changes in how the continent’s largest real estate investors allocate capital.
Mega-deals such as German-listed Vonovia’s €23.5bn takeover of rival Deutsche Wohnen – which completed in December 2021 – contributed to the record multifamily investment figure in 2021. But there are also signs that the growth in multifamily schemes is pushing real estate investors into so-called secondary city locations – and putting emerging markets such as the UK, where the institutional Build to Rent market still represents a small proportion of the overall in-country housing stock, firmly on the investor map.
New investment hotspots emerge as mega-deals dominate the multifamily market
Markets across the board saw record levels of investment into the sector. Outside of the mature German market (€48bn), the Danish (€7bn) and Swedish (€11bn) markets which saw all-time high investment volumes, the less established UK and French markets saw record inflows of capital to the sector, 46% and 73% above their respective five year averages, as investors see substantial opportunities despite Covid-19 concerns and long-lasting Brexit impacts. Spain, Ireland and Finland were close to their strongest investment years ever, with over €7bn of deals across the three markets. Meanwhile, the Polish (€675m), Italian (€500m) and Belgian (€250m) sectors also saw record deal volumes, as geographic diversification truly comes of age.
Data from the report suggest that investors in the smaller growth markets will begin to look beyond major urban centres toward secondary locations to develop portfolios at a more efficient scale. Domicil’s purchase of the NOW Portfolio in Germany covered 20 cities and smaller towns. Prime net initial yields in regional France were almost twice as high as in Paris, and Manchester – at 4.25% – was among the highest of major cities in Europe. Investors are increasingly looking at university towns and science parks away from capital cities.
“Strong investor demand and limited buying opportunity creates a dynamic market in which investors are continually evolving their strategies to identify new geographies and products.
“New national, such as the UK and Spain, markets have emerged within investor sightlines in recent years, with further predicted growth in 2022 and beyond, while opportunities in secondary cities with strong fundamentals are furthering portfolio diversification.”Gemma Kendall, Head of Multifamily Investment, EMEA, JLL
Mega-deals are also on the rise. Vonovia’s €23.5bn takeover was a record-breaker on many fronts as the buyer looked for further operational synergies. Heimstaden continued their acquisitive streak with the €9.1bn purchase of a 29,000-unit Nordic and German portfolio from Akelius, highlighting the multifamily sector’s vast appeal and ever-increasing significance as an asset class. Earlier in the year, AXA’s €2bn purchase of a portfolio developed by intermediate housing provider In’li in the Greater Paris region and Heimstaden’s acquisition of the HD Ejendomme platform from Niam in Denmark for €1.6bn were two of the standout transactions from Q1.
Growing competition for assets, prime yield compression, and increased capital pressure has seen investors look outside the traditional focus of high-rise multifamily blocks in city centre locations and enter sectors including single-family rental (SFR), coliving, and social/affordable housing. According to JLL’s interactions with investors, interest in SFR is on the increase, enticed by lower vacancy risks and longer-term tenancies.
“Europe’s multifamily market has grown from a small, geographically concentrated, and arguably simplistic market to an asset class and investment opportunity with more depth and complexity than ever before.
“While the sector continues to grow and deliver strong investment value, investors are also becoming increasingly creative about how they access product. Add in the diverse and growing proptech sector offering investors new opportunities throughout the deal and product life cycle, investors simply cannot afford to be left behind.”Tom Colthorpe, Associate, EMEA Living