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Major European deals give flavour of the way UK rental market could go

Two new housing deals in mainland Europe have given a flavour for the potential in the UK residential rental market, once institutional investors have a stake in the market.

Already the UK market has seen the Abu Dhabi Investment Authority back Fizzy Living with a £200 million investment, while Qatari Diar has backed Get Living London’s East Village rental properties in Stratford. But recent news from Holland and Germany shows how a much larger scale rental property market will encourage larger scale institutional investment, and the major portfolio deals that go with this. There is also the potential for these mainland European investors to step across the Channel and make investments in the UK, if they can see a liquid market with returns that meet their corporate requirements.

In Holland, Dutch investor Bouwinvest has agreed a deal to sell 723 homes to a joint venture involving Credit Suisse and Qatar Holding. With a transaction value of around EUR90 million, the portfolio includes 723 homes in 16 apartment blocks, with just over half of the units social rented, while the remainder are private rented homes.

“The changes in the rental market and the favourable outlook have increased the interest for investors in Dutch dwellings,” said Bouwinvest director Allard van Spaandonk. “This gives us an excellent opportunity to use capital to rebalance our portfolio.” As a result, Bouwinvest will reduce the volume of regulated rental properties in its portfolio to just 15%.

Bouwinvest has around 15,000 rental properties across Holland, mostly in open market rent and at the higher quality end of the market. It looks to provide those investing in the company with a return of 6%.

And in Germany, consolidation in the housing market has seen property company TAG Immobilien grow its rental homes portfolio to 70,000 homes, from owning just 4,000 in 2009. The portfolio is a mixed bag, including 32,000 homes in eastern Germany. Recently, chief executive Rolf Elgeti has been informally canvassing potential institutional buyers for the portfolio, according to German newspaper Handelsblatt. But Elgeti has said any offer will need to provide a good deal for shareholders.

Investors pick and choose in European private rented sector markets

An increasing number of European investors are looking to the private rented sector as a suitably stable place to make medium term investments. And alongside established mainland markets, they are turning their attentions to the activity in the UK market.

Among them is the German insurance sector, which is increasing its allocation to property from 7.3% last year, to 7.7% in 2014, according to a report from EY Real Estate. Consolidation is taking place in the German residential rental market, with listed company Adler Real Estate receiving shareholder majority approval for its takeover of fellow German company Estavis, and the acquisition of a further 7,700 homes from seller Swiss Corestate. This grows Adler’s residential portfolio to nearly 25,000 units.

Some commentators are now suggesting investment values in the German residential market have strengthened too far in key urban German locations. Outside the main cities, prices are less strong, but other options include the Dutch market, which offers medium term appeal, as well as the possibilities offered by the growing UK institutional market.

In Holland, Bouwinvest has purchased a further 572 Dutch apartments, paying EUR150 million for a package of properties in Amsterdam, The Hague and Rotterdam. And Dutch pension fund manager APG has said it will increase its investment in residential across Europe, following a recent injection of EUR550 million which saw it buy a 22.8% stake in Finnish and Russian housing specialist SATO.

And alongside a recent investment in the UK private rented sector, with backing provided to Fizzy Living, Abu Dhabi investors are also backing the German residential market. The Abu Dhabi Invesment Authority recently bought a 13.4% stake in listed German housing company Deutsche Annington.