‘Strategic undersupply’ boosts resilience of resi assets: Colliers

A fundamental mismatch between housing demand and supply in Europe, which is driving massive investment growth in the residential sector, will continue to generate opportunities despite geopolitical and economic uncertainties, according to Colliers.

In a new report, EMEA: European Living Snapshot, the firm points out that residential investment volumes surged 89% over the course of 2021, and accounted for more than 30% of property investment in Europe for the first time.

Annual volumes by sector, by region (y/y change)
– standing assets only: Q4 2021

“Strategic levels of under-supply to meet urban household formation and growth,” underlie this trend, the report states.

“This long-term imbalance makes the living sector attractive to capital seeking a defensive, contra-cyclical investment with a variety of routes to market,” said Colliers’ managing director cross-border capital markets Luke Dawson.

He said that this is behind the increasing popularity of investment in build-to-rent, social and affordable housing.

Luke Dawson.

Purpose-built student accommodation is similarly popular with investors. “We’re seeing more activity concentrate on niche areas related to specific demographic factors,” said the firm’s head of research Damian Harrington. “PBSA is attracting a lot of interest in markets like Italy, Spain and Central and Eastern Europe.”

Investor interest is expanding beyond the largest and best known urban areas in Europe, the report points out. Lower-tier cities experienced increased activity in 2021 and migration to tier-2 and -3 cities is increasingly evident in Europe’s more mature markets. Examples are Gothenburg and Manchester. The firm said that the European market is beginning to mirror the US in this respect.

The strongest growth markets in Europe have also attracted a significant share of residential investment. These include Berlin. Barcelona, Madrid, Manchester and Dublin as well as Nordic cities Stockholm, Malmo, Gothenburg, Helsinki and Copenhagen.

Damian Harrington.

Vonovia’s takeover of Deutsche Wohnen in late 2021 creating a housing giant with a portfolio of some 568,000 apartments,  cemented Berlin’s position as the fastest-growing residential investment market in Europe.

Challenges ahead include tougher energy efficiency regulations and rising construction costs.

Although residential transactions in France increased 7% to €7.4 billion in 2021 a low asset turnover rate limits activity and former social housing operators are entering the market and taking sizeable stakes in new housing portfolios under development.

In the UK more than 14,500 build-to-rent units were completed in 2021, a year-on-year increase of 24%, and investment increased 33% to €5.6 billion, which was a record. Colliers said that although this growth rate has led to fears over oversupply, evidence from Manchester, which is the UK’s most mature BTR market contradicts this and rent growth there is among the highest in the country. Also, Colliers points out that BTR currently accounts for 9% of total investment volumes into direct real estate in the UK, compared to 35% in the US.