FOREIGN INVESTORS IN EUROPE
Over the past few years, Europe has rolled through one crisis after
another, from the failure of the Greek state to the current refugee
situation; yet foreign investment in European real estate hasn’t
diminished. Last year, well over half of cross-border investment
globally flowed to Europe, reports Real Capital Analytics. That trend
hasn’t changed this year.
The big surprise is that Germany has been catching up to London as
the venue of choice for foreign investors. Professional Report checked
in with Hans-Ulrich Berendes, SIOR, CRE, FRICS, a principal in
Hamburg-based Berendes & Partner Consulting GmbH/CORFAC
International, to see what was going on.
“Germany is attracting a lot of foreign investors, especially Berlin,
which appears to offer the most attractive investment possibility in
Europe because it is still quite cheap,” says Berendes. “The highest
office rents (per month, per square meter) are between E20 and E22,
and that’s nothing compared with Paris and London. It is still very
affordable. Berlin could end up as the number one European investment market this year.”
London was always number one, but a lot of investors are feeling that London is over-priced and the German investors are selling there, Berendes continues. “Investors are looking for cheaper
possibilities around Europe. Berlin is a good example, also Spain is
recovering. Madrid is the number three investment market in Europe
— no one expected that years ago. Italy is coming back; American
investors are buying loans and debts in Italy, mostly in the ‘golden
triangle’ between Milan, Turin, and Genoa.”
For a core-plus product, investors would get a cap rate of 3 to 4
percent yield. For an average, multi-tenant office building, the cap
rate would rise to 4 to 5 percent. An office building in Berlin, says
Berendes, would see a cap rate of 4.75 to 5 percent.
Most of the big German cities are overdone with shopping centers,
so that market is only interesting if you can find something, but the
market is dominated by two or three shopping center companies
and it is tough to crack open, Berendes continues.
Germany is not centralized like France or the U.K. Instead of just Paris
or London, Germany has seven, different, core cities and now investors are going out of these core cities and looking at secondary cities
because core real estate is very expensive.
“It is more risky to go to secondary German cities, but you get better
yields, 7 to 7. 5 percent for neighborhood shopping centers, as an
example, instead of 4. 5 to 5 percent,” says Berendes.
“Foreign investors in Germany,” Berendes adds, “are looking more
and more at niche assets, things like hotels, student housing, and
That’s just one cross-border group. Making an even
bigger impact are the institutional investors. This year,
one Chinese fund bought a portfolio of properties valued at $129 million, says Brown.
“Recently I read where Boston ranked fifth amongst
U.S. cities for the value of commercial real estate
transactions,” says Brown. “I would guess 25 to 30
percent of those deals were to foreign groups. That big
portfolio transaction was done by a fund based in Beijing, but we also have a lot of investors out of Europe,
from places like Germany, London, and Ireland.”
Dublin-based retailer, Primark, opened its first
U.S. store in an old Filene’s Basement venue in
Another company from France that Brown worked
with was seeking hotels in Boston.
“Foreign buyers are looking at all asset classes and
residential,” says Brown. “The targets really depend
on how big their pocketbooks are and what their appetite for risk is. The amount of deals I’m doing today with foreigner investors is definitely greater than
in past years. Foreigners with capital are much more
comfortable coming to Boston to invest.”
ALMOST TIER ONE
Institutional investors prefer to park their money in
just a limited group of tier one, gateway cities, but you
can only buy so many Manhattan office buildings. So,
foreign investments have been migrating outward to
other significant metros; places like Houston, Dallas,
Miami, and Seattle.
Early in 2015, Japanese manufacturer, Daikin Industries Ltd., announced it would build a $410 million
air-conditioner factory near Houston, Texas. Keith
Edwards, SIOR, CCIM, a senior vice president of
brokerage services and land specialist for the Caldwell
Companies in Houston, handled the sale of the land,
which totaled 491 acres.
It was a good deal for Edwards, but it was not his largest, recent, land transaction. He also sold a 795-acre
tract to a group of investors out of China.
“I do a few, large international deals every year,” Edwards says. “These are usually sizeable land sales to
developers who will build industrial properties. Foreign companies come to Houston because the economy is good, schools are healthy, growth continues, and
we are a strong international city.”