What kind of property abroad to invest in the hotel, the store or shopping center? The answer to this question depends largely on strategy and budget, which the investor is willing to allocate for the purchase. Tranio tells which objects it is best to choose at various levels of investment.
| Types objects | The yield, % p | Time contract rent | Advantages | Disadvantages |
|---|---|---|---|---|
| From 300 thousand euros | ||||
| Apartment (short term rental) | 5-7 | From 1 day | High liquidity; compared to the long-term lease — higher yield and no problems with the eviction of tenants; the potential for rental growth | Risks and management of downtime; compared to a long-term lease — more rapid wear |
| Apartment (long term rent) | 2-3 | Than 1 year | High liquidity; high demand from tenants, stable even during the crisis | Risks and management of downtime; problems with the eviction of tenants |
| Student housing | 4-6 | From 6 months | High demand from tenants | Compared to apartments — lower liquidity, it is difficult to repurpose |
| From 2.5 million euros | ||||
| Apartment houses | 3-5 | Than 1 year | High liquidity and growth potential of the capitalization | Low yield, lots of tenants, problems, eviction, need a management company |
| Street shops | 3-4 | 3-10 years | High liquidity and growth potential of the capitalization | Low yield |
| Supermarkets | 5-6,5 | 12-15 years | High yield, long-lasting contracts | The closer the expiry date of the contract, the lower the liquidity |
| From 10 million euros | ||||
| Nursing home | 5-6,5 | 20-25 years | The growth in the number of pensioners, long-lasting contracts | It is difficult to repurpose |
| Shopping malls | 4-6 | 5-15 years | High yield | Risks management for a large number of tenants |
| Hotels | 4-6 | 10-20 years | High yield | It is difficult to repurpose |
* Average values for objects:
If you are ready to invest in real estate from 300 thousand to 2.5 million euros, Tranio recommends the purchase of an apartment or apartments for students.
Investors with a budget of 500-600 thousand euros often want to buy a classic commercial real estate, such as commercial or office. However, these funds are insufficient to purchase a quality object of this type. In this case, under quality we understand the low risks of the asset: location, size, the reliability of the tenant, the terms and conditions of the lease. To these investors, we recommend that residential real estate for rent. Yes, the profitability of such investments will be lower, but liquidity, reliability and growth of capitalization in the long term — above. In addition, such property, if necessary, can be used for personal purposes.
Anna Kuryanovich
Senior investment consultant
Among the advantages of long-term lease — stable demand and high liquidity of the object, however, to such investments there is a risk that the tenant will stop paying and it will be difficult to evict.
For rent best suited for one – or two-bedroom apartments in one of the European cities in the area, popular among the middle class. You can also focus on the students and to choose an apartment near a major University, or to consider the demand of office workers to buy housing near the business district.
The yield in the case of long-term lease is about 2-3 %. Investors who are not ready to manage their own, should hire a management company, the Commission of which is about 5-15 %. Lease agreements are usually concluded for a year with right of renewal.
Short term rental long term is more profitable because the profitability of such an object is higher (5-7 %) and there are no problems with the eviction of tenants. However, there is a risk of downtime, and for short-term rental flats wear out faster than the long-term.
To buy apartments for renting short-term rental costs in places popular with tourists. Thus it is better to choose a large city, the demand which is not affected by seasonality, and then we can focus not only on tourists but also for businessmen on business trips, and the patient — in this case, preferably the housing near business districts or near University hospitals.
Short-term rental brings higher income compared to the long-term, and in this case no problem of eviction of tenants
Short-term lease implies a surrender, for a week or for several months. To deliver housing in the short-term rental is possible, for example, using the popular service Airbnb. If the investor is not ready to dive into the business and to engage in the management of the object independently may need the help of the management company, the Commission of which (depending on city, experience and service set) is from 15 to 30 % of the rental cost. A foreign investor in any case you will need assistance in the management and the team Tranio ready to provide it. We offer property management apartments, short-term leased, and guarantee competent management and yield up to 5-7 %.
Student apartments near a good University is a great investment, as the investor will be provided a steady stream of customers for years to come, the profitability of such objects is higher than conventional apartments. The downside is that student housing complexes in specialized wears out faster than apartments, yielding to rent long term. Besides, student apartments are harder to sell because they are designed for a specific audience, and the investor may not use them for their own accommodation. But compared to non-real estate student apartments have high liquidity.
To buy profitable student accommodation in UK and Germany. These markets are reliable and are of high demand by local and foreign students. To choose the right city to invest in student housing, you need to pay attention to the presence nearby of one or more popular among students of educational institutions, as well as the lack of excess supply in the local rental market, where student apartments can compete with a large number of available apartments, and the yield will be affected by the low level of rents.
“The average yield student apartments — from 4 to 6 %. This figure depends on how a large University is nearby, how far is it from the University located and how they are high quality and modern. Accordingly, the higher the quality, the lower the risk and profitability”,— said Giorgi Kachmazov, managing partner Tranio.
The lease is usually one calendar or academic year.
Buyers with a budget from 2.5 million to 10 million euros Tranio advises to buy items format street-retail or supermarkets. This budget approach also apartment houses, but investment in such facilities should only deal with those who are ready to take in management and periodically to solve the problems of the residents.
The investor with a budget of EUR 10 million is best seen as an investment commercial property. Often clients with this budget are interested in buying a small hotel, but we do not recommend to consider this option if you focus on passive income and are not willing to be fully involved in the management of the business. In addition to time-consuming, hospitality requires some experience.
Anna Kuryanovich
Senior investment consultant
Apartment houses have high liquidity but, as in the case of separate apartments, tenants can be difficult to evict, because in Europe their rights are protected by law.
The main difficulty of tenement houses — a large number of tenants and a high probability of occurrence of any issues or problems that require time to solve. Therefore, an investor will need the help of the management company.
Apartment buildings should choose in markets where rental housing is stable demand, such as in Berlin, where approximately 85% of residents are tenants. You should focus on the cities with a developed labour market: if there is work, there are tenants and, therefore, you can be confident in the demand for housing and stable income. In Germany these cities include Berlin, Hamburg, düsseldorf, Cologne and Munich, Austria — Vienna.
It is important to pay attention not only to features of the city, but also area-specific: profitable to buy an apartment building, where rents and property demand are rising, the number of residents increased and planned major infrastructure projects.
Rental yield of houses is on average 3-5 %. As in the case of separate apartments, the lease is usually for a year, renewable.
Street retail — small shops, cafes and restaurants, located on the first floors of the houses. This format is a typical solution in the construction of the Central streets of major cities. Premises of street retail have high liquidity but low profitability. Often in Europe is not sold the first floor is separated and only the building as a whole. Therefore such objects, especially in good locations, little.
According to Anna Kuryanovich, the main indicators of the liquidity of such objects located on streets with heavy pedestrian traffic and excellent public transport, as well as an attractive appearance and convenience for the visitors (the presence of display Windows, a separate entrance from the street, etc.).
The yield of objects of the format of street retail on average 3-4 %, but on large, well-known shopping streets (for example, Oxford street in London or Passeig de Gracia in Barcelona) it can be below 3 %.
Unlike other types of real estate, lease contracts of objects of street retail are usually short — 3 to 5 years, but it’s kompensiruet high demand from tenants. In some countries, such as Spain, distributed contracts for 10 years.
It is recommended to buy such an object, which creates a minimum of problems when the property is a low risk, in good locations with a reliable corporate tenant, long term lease contract. It is desirable that the high operational costs were borne by the tenant
“This is one of the most popular formats of investment for international investors. Its popularity is due to ease of management, low risk and high reward. But there are also disadvantages: the closer the end of the lease, the lower liquidity and higher discount for sale. A key factor in reducing risk is a good location,” says George Kachmazov.
It is most advantageous to buy supermarkets in urban areas with a growing population, next to other outlets, attracting tenants, close to public transport and main transport routes.
The profitability of supermarkets is 5-6,5 %. Rental contracts of such facilities long — usually they are for 15 years.
How the investor is required to participate in the management of commercial property, depends on the type of lease. Most convenient for the owner of the contract is of the type NNN lease (triple net lease): the owner charges the tenant a fee, “triple”, that is without deduction of tax, insurance and maintenance costs (these costs under the agreement are borne by the lessee).
If there are more than 10 million euros Tranio recommends to invest in nursing homes. For large budgets, you can also invest in shopping malls and hotels, however, such objects are difficult to manage. Besides, for the purchase of large and high-quality hotels and shopping centers require investments in the amount of 30-100 million euros.
Nursing home — a promising option for investment, as in Europe, an increasing number of elderly people (according to Eurostat forecasts, by 2040 the proportion of people over 65 will constitute more than a quarter of Europe’s population) and more seniors need specialized housing. The main disadvantage of such an object (as in the case with campuses) — the complexity of the conversion.
Complexes for the elderly is found in Austria, great Britain, Germany, USA or France, in large or medium-sized cities and their surroundings. You should pay attention to the demographics — how many pensioners will be in the area in the future, 10-30 years (such data can be obtained in the process of conducting Due Diligence), and that, whether in the area of consumer service companies, hospitals and rehabilitation centers, well-developed transport infrastructure.
Quality nursing homes in Europe are usually dealt with long-term (average 20 years) rigid contracts. Rental yield is 5-6,5 %.
According to George Kachmazov, shopping centers is a complicated investment option due to the large number of tenants. In addition, the retail format is constantly changing, and often sold old, outdated and non-functional shopping centers. Amateur investor easy to fall into the trap and buy unpromising object. “This type of investment is more suitable for investors with the professional management team, the cost of which are repaid with large amounts of revenue. In my opinion, to invest in shopping centres stands in the presence of more than 30 million euros,”— said Giorgi Kachmazov.
When choosing a shopping centre should pay attention to the purchasing power of the population in the region, availability of infrastructure and accessibility.
“An important number of tenants, the presence of anchor tenants magnets (usually well-known brands, such as Zara, Nike, etc.), availability of food court, term of lease contracts number of customers living around, the demographics of the city’s technical condition and compliance with relevant technical requirements of such buildings, the number of competitors in the area, and how long the tenants take the property and what is the probability of the emergence of new similar facilities in the neighborhood,”— said Giorgi Kachmazov.
Featured tenants — grocery stores, electronics stores, textiles, as well as a café. The more in a shopping Mall famous brands, the better for business, as popular among visitors of the brand attract new customers and thereby increase revenues for tenants and increase lease rates for the investor. Leases are usually for 5-15 years. The profitability of shopping centers is on average 4-6 %.
A large number of tenants complicates the management
The hotel market is heterogeneous and there are different profiles and the level of risk assets. “It’s hard to buy quality and liquidity facility with a budget of around 10-15 million: there is the risk that the hotel will be located in the most sought after location and will be managed by a small operator who may at some point move out. In such a scenario is to find another tenant will be extremely difficult. We do not recommend to consider as an investment small hotels: most likely, they will be tied small (and therefore risky) statement that “eat” returns. Besides, small hotels often mean personal time-consuming management of the business. Nice, large hotel with well-known management companies, located in the center of large European cities, there are between 50 million and give a low yield (about 4 %), as evaluated by the market as low-risk and highly liquid. In addition, it is also prestigious for the owner of the asset,”— said Giorgi Kachmazov.
Ideally, you should choose the hotels located in major cities that are not dependent on seasonal demand, with a large tourist flow. In addition to the location, you need to pay attention to the condition of the hotel, the time of the last repair, ratings and reviews on Booking.com dynamics of stay of tourists in the location, seasonality of demand, competitiveness in the market, the presence in the building Spa and meeting rooms.
Contracts with operators are for 10-20 years and can be of two types: a lease or a management agreement. In the first case the owner of it means obtaining a fixed rent, the second — percent of revenue. The yield in the case of contract management may be higher, but it always depends on the financial result of the operator. The rental yield for the major cities and capitals located at the level of 4-6 %.
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When planning to purchase revenue properties abroad you need to consider many factors and calculate each step, so you should trust the professionals with extensive experience and good market knowledge. Contact the managers Tranio, and they will advise you on the purchase of commercial real estate.
Yulia Kozhevnikova, Tranio
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