Inside CRE valuations: Understanding transaction costs in Europe

Why transaction costs matter for CRE investment decision-making

Transaction costs can seem like a back-office detail. However, failing to account for local practice and its impact on these costs, or modelling them incorrectly in valuations, can distort yields, misprice acquisitions, and misinterpret returns. For investors, this inconsistency can read as weak governance, undermining their confidence in reported figures.

Understanding whether costs are implicit or explicit, how deal structure impacts stamp duty, and how regional norms shape reporting in the European CRE market helps ensure valuations are accurate, defensible, and as comparable as possible across markets.

When a few basis points can be the difference between a deal that works and one that doesn’t, investors need the facts. This starts by recognising that Europe is not a uniform market, and that seeking transparent, market-informed treatment of transaction costs is critical to both credibility and decision-making.

Why transaction cost assumptions diverge in Europe

Figure 1: Example illustrating the impact of explicit vs. implicit transaction cost assumptions on exit net value

Unlike the US market, where benchmarking data offers some consistency, European treatment varies by deal structure, tax norms, and local market practice. Typically, gross value includes transaction costs, where net value excludes them, but European practice diverges from this:

• In some markets, transaction costs are explicitly included as a percentage adjustment.

• In others, they’re implicitly reflected in gross yields and the resulting reported values.

This means that two valuation reports for similar assets in different countries may look comparable even though they aren’t, depending on legal and tax frameworks and transactional practice. Without clarity, investors risk misinterpreting these net versus gross figures and overestimating yield, directly impacting net proceeds and internal rate of return calculations.

This makes it essential for investors and lenders to confirm whether values are gross or net of transaction costs before relying on them in models or negotiations.

How deal structure changes the cost base

Across Europe, both buyers and sellers also incur a range of legal, agent, and due diligence fees. Stamp duty, borne by the buyer, is usually the largest line item.

A second factor in the transaction cost puzzle is how the deal itself is structured:

• Asset deals: Here, the property itself is transferred, triggering full stamp duty. Typically, transaction costs are higher.

• Share deals: The buyer acquires shares in a Special Purpose Vehicle, or SPV, which owns the property. These often attract lower stamp duty (or may be fully exempt) and are favoured for tax efficiency.

However, even where stamp duty is reduced, due diligence and other fees still apply, and valuers will typically adjust for them.

Deal structure isn’t just a legal choice. It can change the way valuations are modelled and return metrics. Investors comparing European opportunities need to factor this in from the start.

Regional divergences in European markets

When investing in different countries, investors need to recalibrate their expectations for each region’s nuances, rather than expecting a homogenised valuation landscape. Broadly speaking, there are four key European “zones” to understand when considering transaction cost handling.

United Kingdom

Stamp Duty Land Tax (SDLT) is tiered for commercial properties (mixed-use or non-residential properties), rising to a 5% maximum. This is usually explicitly modelled, and investors should account for its scaling impact on higher-value deals.

Western Europe (e.g. France, Germany, Ireland, Netherlands, etc.)

With a long history of institutional investment alongside regulatory consistency and standardised transaction processes, Western European markets offer consistent transaction cost handling and familiarity. Stamp duty rates for CRE typically vary within a single digit percentile, depending on regional tax legislation.

However, there can be significant local variance. For example, France incentivises purchases of newly built or refurbished properties with reduced stamp duty to support the construction sector, while Germany typically applies rates at the higher end of the range.

Central and Eastern Europe (CEE) (e.g. Poland, Czech Republic, etc.)

Because it’s a smaller and fresher institutional investment market than other Euro zones, the CEE sees significant fragmentation, with local market practice, not international standards, driving valuation and with extra complexity from local tax treatments and difficulties in due diligence. Commonly, valuers and investors use gross initial yields (the net rent divided by market value or purchase price). This means transaction costs are implicitly reflected in valuations or excluded entirely.

Nordic countries (e.g. Sweden, Finland, Denmark, Norway, etc.)

In the Nordic bloc, share deals predominate, which makes transaction costs and other acquisition expenses difficult to quantify or standardise. They’re usually not itemised in reporting, with stakeholders typically preferring a gross yield basis without stamp duty or transaction costs.

Figure 2: Comparison of property transfer taxes and transaction cost treatment across European markets

Key takeaway: Best practices for investors and valuers

To best navigate the added complexities of transaction costs in the European market, consider the following:

• Clarify assumptions: Always establish whether reported values are gross or net of transaction costs.

• Account for structure: Recognise that an asset versus share deal can materially shift cost assumptions.

• Expert advice: Consult with local experts and Altus Group’s Valuation Advisory professionals to understand the prevailing market practice and treatment of transaction costs in valuation models.

ARGUS Intelligence enables clients to model their assets to the highest industry standards, ensuring transaction cost assumptions are clearly defined and consistently applied across portfolios. Users can seamlessly input both closing and resale costs as adjustments aligned to the purchase or disposition of a property. This flexibility supports transparent scenario analysis and alignment with local valuation standards, helping investors, brokers, and valuers capture the full financial impact of transaction costs from entry through exit proceeds and overall returns.

Clear alignment between market practice, investor expectations, and the associated legal and tax implications is key to making informed and accurate investment decisions in the European real estate market.

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