WEB FEATURE: Global Market Report – Europe

Part two of MHN's global market report focuses on Europe, a market that is surprisingly untapped and undeveloped compared to the U.S. model.

This is part two of MHN’s three-part global market report. To read part one, which focuses on Asia, click here. Part three, which examines South America, is available here.


Surprisingly, the apartment market in Europe is just as untapped. Despite recession-induced austerity measures, capital is still moving in Europe, but again, the apartment model is very different, even in the United Kingdom, where one might expect similarities to the U.S. model. “In London,” Harrelson says, “the average landlord owns fewer than four units, and they tend to be all over town. And they’re flats, in all different conditions and locations.”

Global apartment sales volume and caps. Volume in purple; cap rates in orange. (Source: Real Capital Analytics)

Colleen Pentland Lally, associate director of the multi-housing group at CBRE Capital Markets, reinforces this point. “In the U.K. there is a huge pool of renters,” she tells MHN, “but it’s not institutional rental property. It’s not investment as far as blocks of buildings. Seventy-three percent of U.K. residential portfolios contain fewer than 10 units. The rental housing sector is worth about $925 billion in the U.K., and that’s more than the entire commercial property sector combined. Less than one percent of that $925 billion is held by institutions. So it’s just not a sophisticated investment market. All of those units are scattered around with different people.”

Pentland Lally has hosted several groups of investors and architects from the United Kingdom, taking them through Class A properties in Boston. She says, “They had never been in an institutional-grade apartment building, and they were taking notes. Architects from the U.K. have now partnered with architects who specialize in multifamily here in the U.S. to get that kind of guidance. The knowledge base just isn’t there to make that kind of investment.” She adds, “They were overwhelmed by the services that were provided by traditional multifamily here in the U.S.”

Of the post-Soviet countries in Eastern Europe, Joseph Karp, senior vice president of Apollo-Rida in Poland, tells MHN that “Poland is probably the most healthy, most market-driven.” But whereas the U.S. market has developed over the past 250 years, the market in Poland has been created in basically the last 20. “When someone asks what the value of a residential unit was in 1990,” Karp says, “no one can give you an answer, because there weren’t market values; there weren’t appraisals; there wasn’t anything except someone looking at a cost approach.”

Over time, the government has been able to move units into private hands. “There is a rental market,” Karp says, “but there are no classic American multifamily developments where a developer builds a building containing 250 units and rents them on a monthly basis. And I can tell you, in Ukraine and Belarus and Russia, that’s not the case, either. There are no apartment developers in the American standard.” In Poland, “it’s 95 percent condo, a few co-ops, but there’s no dedicated rental property.”

In these countries it is typical for people to stay at home with their parents until they’re 30, because they don’t have enough money for an apartment and are ultimately saving up for a condo of their own. “Poles as well as most Eastern Europeans still are cash buyers, cash savers,” Karp says. In terms of mobility, Poles are also very different from Americans, much more likely to stay in one spot and pay a place down until there’s nothing owed on it.

Banks in Poland, which are especially conservative these days, are reluctant to loan toward a rental product that historically hasn’t existed. And governments are just as hesitant to sign off. “The whole process of building permits and approvals is complicated here,” Karp says. “Visualize the bureaucrat in the local city government who’s been handed a request to build a project that’s not condominium, not cooperative. He doesn’t understand a rental apartment, so [that affects] the approval process.”

Phillips believes Turkey may be the strongest market in Europe. He says, “It’s a really fascinating market—politically moving in generally the right direction, with a robust economy and plenty of demand. Turkey has done really well by having an investment-friendly climate and good, solid growth prospects.”