CBRE: mercurial government policy cited as largest risk to European multifamily sector

CBRE says while changing policy or government intervention is not necessarily bad for investment, ever-changing regulation can be.

In Ireland, for example, the government intervened to limit rent increases to 4% per annum in designated Rent Pressure Zones. However, this has not negatively impacted investment and has created a degree of certainty for investors, CBRE noted.

CBRE Research explains:

“In London and the rest of the UK, there are still some inconsistencies in planning policy. Both central and local government are exploring the appropriate approach to this rapidly emerging housing tenure that now makes up a substantial part of residential development. This can cause uncertainty in some locations, but generally there is a great deal of government support for multifamily, owing to the critical role it will play in delivering the homes needed across the UK.

“For institutional landlords in Spain, the government has increased the minimum duration of tenancies from three to seven years, and additional measures to curb excessive rent hikes are currently being proposed in Catalonia. The Netherlands is also contemplating additional measures in the form of an ‘emergency brake’ on excessive rent increases. A form of this has been implemented in Germany, where new ‘rent brake’ rules were introduced at the beginning of 2019.”

Despite these challenges, CBRE insists that the outlook for the multifamily sector across Europe is positive and remains an attractive asset class which is expected to attract capital through 2019 and beyond.

In the US, investment into the multifamily sector has grown from $22bn in 2001, to $175bn in 2018, making it the dominant investment sector. As it continues to emerge in Europe, CBRE forecasts the market could see a similar trajectory of investment. CBRE currently forecasts investment volumes into multifamily rise by 27% over the next five years, to c.€64bn.

This robust forecast – up from a record high investment of €50bn in 2018 – is supported by a favourable supply-demand dynamic which in turn supports the outlook for sustained rental growth, as well as a number of inherent benefits that residential investments offer. CBRE Research explains:

“These include long—tern inflation linked returns, portfolio diversification due to a low correlation with the commercial real estate sectors, favourable risk-adjusted returns compared with other property classes, and the reduced vacancy risk of residential properties due to the granularity of leases.

“In the US, for example, the established multifamily market has a lower risk profile and has outperformed other asset classes over the long-term. All these factors contribute to the defensive nature of residential as an investment class, which is particularly appealing in a late-cycle environment.”

james.wallace@realassetmedia.com