Retail was previously the stable rental income producing mainstay of institutional property portfolios.
But there are now signs that pension funds and insurers are now rotating their real estate portfolio allocation – which itself has benefitted from flows out of negative-yielding government and corporate bonds – into the more defensive broad ‘Living Sector’ encompassing apartments, student housing, care homes, senior living and hotels.
Since Catella’s previous residential market tracker research report in the first quarter of 2018, the average prime European residential yield has fallen 25 basis points in 15 months to 3.72% and is lower than the equivalent office yield for the first time. The lowest yields in European housing markets are in Stockholm (1.75%) and Zurich (1.90%), with the highest in the eastern European cities of Riga (5.75) and Wroclaw (5.40%).
The average monthly apartment rent (across all ages of building) in the 59 cities surveyed is currently €15.13 per sqm. The cheapest apartment rents can be found in the Latvian capital Riga (€8.50 sqm), followed by the Belgian city of Liège. On average, the residents of Geneva (€ 28.50 sqm), Paris (€27.90 sqm) and Dublin (€ 25.99 sqm), spend the most money on a rented apartment. Among other European cities, only Oslo and Luxembourg reach the € 25 a month average rental mark.
Thomas Beyerle, Head of Research at Catella, explains:
“We believe there is still some more moderate yield com- pression, and so price gains, to come by the end of the year in those European residential markets that are currently above the European average. So Utrecht and Eindhoven in the Nether- lands, Helsinki in Finland and Seville in Spain, are examples of such cities that are in the centre of Catella’s radar screen.”