RCA Insights

Apartments Now One-Quarter of Global CRE Investments

By on November 5th, 2019

The apartment sector now constitutes one-quarter of all investment in income-producing commercial properties globally. Outside of the Americas, the share of total activity represented by the apartment sector has generally been low, but this share is climbing because of the growing attractiveness of the sector.

In the past, investments in apartment properties have been a small part of the institutional investment world outside of the U.S. market. The economics of residential construction have traditionally made it more attractive for developers to build to sell rather than building to rent. In the U.S. though, tax regimes and development planning have provided developers and investors with wider flexibility on how to approach the market.

With the flexibility on offer in the U.S., investors have pushed the apartment sector up to represent the largest portion of the U.S. investment market. For the Americas overall, apartments represented 34% of total investment activity in the third quarter of 2019.

The apartment sector’s current share of the global market is not so much a story about the Americas though. Instead, it is the expansion in Europe that has pushed apartments up to represent one-quarter of the global commercial property investment market.

In the EMEA region, apartment deal activity represented 21% of all investments in income-producing properties in Q3 2019. This share has been climbing steadily over the last three years. At the start of 2016, apartments had represented only 12% of total deal activity in the region.

The growth in market share for EMEA is somewhat concentrated. Large investment markets like Germany, the Netherlands, Spain and the U.K. each have seen at least $5 billion of apartment deal activity for the first nine months of 2019. In Germany, this volume was 27% of all investment activity for the year to date. In both the Netherlands and Spain more than 40% of direct investment was allocated to apartments.

Apartment investment in the Asia Pacific region is still minimal and falling as a share of total investment. Such activity was only 3% of total investment volume in the region in Q3 2019. Japan has been the largest market for this investment with $2.4 billion of apartment deal volume for the year to date, representing 10% of all activity in the country. Australia came in at a distant second in the region with only $813 million in apartment transaction volume — 4% of all activity. There has been much talk of developing a professionally managed rental housing market in Australia, but tax structures have not aided these investment objectives.

Investors active in all regions of the globe have always understood the benefits of low capex to NOI and slow, stable returns offered by the apartment sector. Little wonder then that these investors are finding apartment investment opportunities outside of the Americas.

The new edition of Global Capital Trends will be published Nov. 6th, with analysis of capital flows and investment trends across the regions, as well as rankings of the biggest deals and players of the year to date. 

Jim Costello

Jim Costello

Senior Vice President
jcostello@rcanalytics.com

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.