The “Euro Real Estate Primer: Capex Questions” report from CreditSights provides insights for credit analysts and real estate market enthusiasts, highlighting significant trends and strategic considerations

This primer highlights a range of current real estate capex strategies from a broad range of real estate companies CreditSights cover, alongside key sustainability trends that are shaping the real estate landscape, offering valuable insights for those analyzing credit and market dynamics.

You can view the full report here. Note that a CreditSights account may be required to view the document.

Overall, the European real estate market is evolving towards more sustainable and economically viable practices, driven by a combination of regulatory frameworks, tenant demands, and broader economic conditions. The capex strategies also reflect the need for companies to maintain property quality while balancing cash flow needs.

Key findings:

• Real estate capex strategies: Reducing capex to a minimum level is not a sustainable long-term strategy given the impact on portfolio quality, and a demand for improved energy efficiency of building stock.
• Energy efficiency and sustainability: Energy efficiency upgrades are emphasized as crucial, driven by regulatory demands and added value. Energy efficiency and sustainability criteria are driving purchase prices, whilst sustainability is becoming a pivotal factor in tenant demand, particularly within the B2B sectors like offices, retail, and logistics.
• Development approaches: The primer explores development strategies, identifying achieving a 150-200 bp yield on cost (YoC) over cap rates as a good rule of thumb to balance risk effectively, although this differs across different projects and companies.
• Expensed maintenance costs: Within the companies covered, in 2023, expensed maintenance costs relative to standing portfolio value ratios varied significantly, ranging from 20 bp to 190 bp, with an average of 0.60 bp.

For more insight into the European property market, you can also view our webinar ‘Picking Apart the European Property Problem’ with Mary Pollock, Head of Real Estate at CreditSights.