Residential investments in Europe used to be the domain of certain specialised investors but that is now changing as other players that have previously invested exclusively in office or retail are looking at investments in the living sector. Maximilian Mendel, Head of Living Investment at JLL in Poland, talked to Property Forum about current trends in CEE residential investment.
How did residential assets perform in 2019 on the CEE investment market? What are your projections for 2020?
Although the supply of living assets (multifamily rental, student and senior housing) in CEE is still relatively small, 2019 saw a lot of activity on the market with a transaction volume of over €300 million, representing a growth of more than 100% year-on-year. Depending on whether you take into account takeovers, the acquisition of a Polish residential developer (Vantage Development) by a German investor (TAG Immobilien) adds a couple of tens of millions of euros to this volume. Thanks to the one-off sale of one of the two largest portfolios in CEE – the €1.3 billion Residomo platform in the Czech Republic – the investment volume for 2020 is going to be significantly higher.
What makes residential assets in CEE attractive from an investor’s point of view?
Firstly, there is a lot of capital that needs to be deployed. Yields, which are much higher in CEE compared to Western Europe, attract a lot of investment activity. One attractive feature of the CEE market is that there are not many investors present in these alternative segments which means that the competition is not so harsh and it is relatively easy to become a large player.
Do you see more investors opening up towards alternative investments?
In my opinion, living investments are not a new or alternative market. We are simply witnessing a switching of focus to this segment. Previously, in Europe, residential investments used to be the domain of certain specialised investors but that is now changing as a number of other players that have previously exclusively invested in core asset classes, such as office or retail, are looking at living investments.
Is finding the right operator often an issue with living assets?
Some of the owners come with an already established operator – either in-house or in form of a partner, so it is not an issue for them. It is more difficult for investors that need to find an operator locally as there is a lack of operators scale in CEE. Whereas in Germany and Scandinavia there are operators with a track record that manage tens of thousands of apartments, the largest operators in CEE manage a few thousand units at best but the stock is usually not institutionalised but owned by private individuals.
What are the main risks investors need to be wary of when investing in alternatives?
There is the currency risk, of course, but I don’t really see any risks on the demand side. So far all multifamily rental and student housing projects on the market have been fully rented out. Student housing projects, especially if you start renting at the right time, usually fill up at once and more quickly than multifamily rental buildings. Luckily for owners, rental markets in CEE are more landlord-friendly and much less regulated than in Western Europe.
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