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CBRE: demand drivers and structural supply shortage has spurred European multifamily sector growth

In CBRE’s EMEA Multifamily ViewPoint, The Rise of Investment in Multifamily Housing, the global real estate brokerage firm explains three demand drivers supporting the sector’s growth.

Urbanisation

This megatrend is profoundly reshaping the economic and demographic structures of countries globally, says CBRE Research, and influences a broad range of issues including; infrastructure constraints, competition for land, planning, logistics and housing affordability. Continued urbanisation will drive demand for homes in many cities across Europe, CBRE added.

According to the World Bank, around three-quarters of the population of the European Union (EU) currently live in urban areas. This compares with less than two—thirds 50 years ago. The United Nations project that 84% of Europe’s population will reside in urban areas by 2050. Based on current population projections, this would equate to an additional 46m people.

Socio-demographic shifts

Widespread socio-demographic shifts are also driving demand for rental accommodation.  CBRE’s report states:

“Across Europe the age at which people are marrying and having children has been steadily rising and is now over 30 in many countries. Getting married and having children are two triggers that drive the house buying decision, so as they are being increasingly delayed it will translate into many more people residing in rented stock for longer.

Affordability constraints of home ownership

Affordability of home ownership is a further factor that is boosting demand for rental housing, says CBRE Research. House price growth continues to outpace wage inflation across most of Europe.

House prices across Europe increased by 4.4% year-on-year in 2018, while wages (in real terms) only grew by 0.8%, according to Oxford Economics. “As a result, house prices in many countries across Europe are now more than eight times average salaries. At the same time, stricter mortgage regulations in a number of countries have increased the barrier for home ownership, especially for young starters,” wrote CBRE.

CBRE explains:

“These factors have contributed to an overall fall in the level of homeownership across Europe.  The combined effects of an increasing urban populous, social shifts and affordability constraints will lead to continued expansion of the private rented sector, ensuring a robust and sustained demand for rental homes across Europe.

“Along with these demand-side drivers, most markets also suffer from a structural undersupply of new homes. A number of factors contribute to the slow supply response, including high material and labour costs, unavailability of land and maximum capacity of the construction sector. This creates a compelling supply—demand backdrop for investors.

“This also means that the development of new rental housing will continue to gain support at a Government level. This is particularly true in emerging markets like the UK and Ireland where the so called ‘Build—to—Rent’ sector is garnering increasing support and recognition for the role it can play in delivering new housing stock.”

james.wallace@realassetmedia.com