Residential is the sector to be in, delegates heard at Real Asset Media’s European Residential Investment Briefing, which was held at TaylorWessing UK’s headquarters in London last week.
‘Now one euro in four invested in real estate is spent on some form of residential,’ said Marcus Cieleback, Chief Economist, Patrizia Immobilien. ‘Ten years ago it was half that amount’.
The sector gives investors a lot of choice, as it has diversified greatly encompassing ‘cradle to grave’ solutions, from nurseries and student housing to the private rented sector and micro living all the way to care homes, assisted living and senior housing.
The driving force of demand is the urbanisation trend, which looking ahead will continue to drive people, especially the young, into the cities.
‘Until recently only private rentals were available, but the institutional side of PRS has really come up recently, while owner occupancy rates have been dropping,’ Cieleback said. ‘There are large numbers of new renters, like young professionals, who will not buy’.
Some cannot buy because prices are high and they cannot get a mortgage, while some choose not to because they want to be flexible and mobile.
‘The residential story is all about cities rather than countries,’ he said. ‘In order to pick the winning cities, you have to get a complete picture by looking at attractiveness but also at liquidity. Luxembourg, for example, is economically attractive but it has zero liquidity, because it is hard to find an asset, while Berlin is the most liquid city in Europe’.
Rising demand has led to a response from developers and construction activity has picked up in some countries. However, the gap between supply and demand is not going to be filled anytime soon.
‘Completions are rising in a lot of countries in Europe, but nowhere near the levels just before the financial crisis’ he said. ‘In order to increase supply significantly, housing construction would need to be at 1% of existing stock, while the average now is 0.7%. So there is absolutely no need to fear oversupply’.