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Patrizia: unlevered European residential annual returns to average up to 6.5% over the next five years

Patrizia emphasis the defensive qualities of residential asset class amid protracted geopolitical volatility and also argues that the trend of urbanisation, driving the sectors, strength, is here to stay.

In the absence of a Europe-wide professional benchmark index, Patrizia has undertaken its own bespoke analysis of the European rental cycle data using online portals and other market sources.

Patrizia’s research shows that since the millennium, rental income has remained on an upward trajectory and displayed low volatility throughout the global financial crisis (GFC), underpinning the fact that the multi-family asset class remains a stabiliser for any portfolio.

Patrizia’s key residential market insights include:

  • Demand for residential investment remains strong with investment volumes growing from €5 billion in 2009 to €50.8 billion in 2018;
  • Downside protection from residential investments can be seen when comparing the residential income return post-GFC with the corresponding numbers for offices and retail;
  • German investors are the most active players across the European residential market followed by Nordic players; German and Nordic investors are investing €15.1 billion outside of their domestic markets on an annual basis;
  • Cross-border capital targeting European residential, particularly in Spain and Southern Europe, is dominated by US and Canadian investors mostly seeking M&A deals;
  • Luxembourg, Belgium, Sweden and Germany are dominated by domestic investors, whilst a blend of domestic and international investors is active in the Netherlands, France, Finland and the UK; by contrast, international capital constitutes most of the investment in Denmark, Spain and Austria.

Dr Marcus Cieleback, PATRIZIA’s Chief Economist and the author of the study, explains:

“The trend of urbanisation is here to stay, with population growth and, as a result, future housing demand surpassing macroeconomic or political volatility. Our latest European residential research demonstrates that multi-family assets continue to offer institutional investors an attractive investment product.”

“Many cities are struggling to meet the challenges of urbanisation with some governments responding with rent limits. However, history teaches us that this can negatively impact the quality of stock and, ultimately, the supply of rental housing. Despite this, we expect residential investments to remain high on the radar of institutional investors as an asset class that offers cash-flow stability and diversification.”

“Liquidity across many of Europe’s major urban areas has increased demonstrably since 2009, reflecting the maturing nature of this asset class and the vast number of opportunities available to investors. Sophisticated demographic analysis shows that the investible market for residential, at 25% of the European territory is quite significant. And so with such an opportunity, expertise and experience are absolutely critical to being able to identify institutional, quality products.”

james.wallace@realassetmedia.com