Property and life cycles

The European private and collective residential investment market

The private and collective residential, often referred to as just ‘residential’, has seen constant growth over the last decade it now includes new residential forms such as co-living, and is being increasingly solicited in institutional investor portfolio diversification strategies. €279 Billion has been invested in Europe for the period. Since 2018, the residential market has become the asset class with the second highest investment level, behind office properties.

The European private and collective residential market is largely dominated by Germany which is responsible for 38% of the total capital invested between 2010 and 2019. Holland, Sweden, Spain, United Kingdom, France and Ireland are also attractive destinations for investors with 45% of the funds committed.

“Prime” returns of over 5% can be achieved in certain Northern European cities in Belgium, Holland or Ireland.

Private and collective residential: a highly resilient asset class in times of crisis

Whilst the residential market has had a strong image as a refuge value during the recent crises, it would be wise to consider this in more detail. In fact, the 2008/2009 economic and financial crisis and the European sovereign debt crisis were not absorbed by all of the European metropolitan areas in the same way. The European markets with a high economic dynamic (Berlin, Munich, Amsterdam, Paris, Milan) saw their fundamentals (rent levels and prices) get stronger whilst certain Southern European metropolitan areas (Athens, Barcelona, Madrid, Rome), or those which suffered from an over-representation of the financial sector in their economy (Dublin), have been through rather erratic series of adjustments and recoveries.

Whilst the economic crisis we are currently facing will be quite broad, our Euro Zone residential price forecast model appears to register a rise of around 2% in the annual averages for 2020 to 2022. For the moment the market seems better prepared to face this crisis than it did for the last two.

Our analytical table for European private and collective residential investment

Praemia REIM has constructed a statistical model for the European residential markets which provides a means to understand the solidity of their fundamentals, their value potentials and their position within the property cycle. In order to identify the most attractive markets, we have analysed a number of different criteria within a single matrix (Demographic, economic and real-estate indicators).

We have attributed scores to the various residential markets analysed. Three major market categories have been identified. Germany, Holland, France and Austria have an interesting return/risk relationship. Spain, Finland and Belgium are markets with good fundamentals but which will be facing some difficulties within their respective residential markets. Finally, Portugal, Ireland, Italy and Greece are markets with either volatile fundamentals or where the residential market could be rendered unstable over the next two years.

In this context we recommend looking towards the more resilient metropolitan areas with the following characteristics:

• a deep market, where there is liquidity in the residential blocks;

• potential income flows based on the quality of employment and the population’s disposable incomes;

• an attractive position in the price and rent-level cycle.

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