The residential sector offers the most opportunities in Europe, as it is supported by structural trends like urbanisation, panellists agreed at the PropertyEU European Outlook Investment Briefing, which took place in London this week at the offices of Colliers International.
‘There is rental growth across the board in residential in Europe, and more recovery to come in the cities because of the supply/demand imbalance,’ said John Danes, head of Continental Europe property research at Aberdeen Asset Management.
The urban population is increasing across Europe and not enough housing is being built, he noted: ‘We are interested in residential because of the long-term structural trends, and we cannot find the right product in the market, so we are building it ourselves. In Germany alone we have done over 100 PRS developments in the last five years.’
The shortage of quality housing affects all the main cities in Europe from the Nordics to Spain and investors are already reaping the benefits, said Rob Sim, partner and head of Northern Europe at Europa Capital: ‘Residential can generate better returns and has less obsolescence than the office or the retail market. In Copenhagen, for example, we have seen 10% rental growth in the last 12 months.’
Demand for residential will also lead to development and change in the sector. Conversions from office to residential ‘offer opportunities and higher returns,’ said Danes. There will be more growth in student housing as well as senior housing, while microliving and communal living are set to expand.
Multifamily spreads to Europe
‘I see strong potential for US-style multifamily housing to be successful in the UK and elsewhere in Europe,’ said Robin Carr, executive director – head of UK and co-chief investment officer at Aerium.
Cities that were not necessarily on investors’ radar screens are coming to the fore because of the demand, said Richard Divall, head of cross-border capital markets, EMEA at Colliers International: ‘Much of the focus now is on the main cities. Places like Budapest, Helsinki or Lisbon, which were not on the map until recently, are getting a lot of attention.’
In the UK as well regional cities are attracting more interest, offering people quality accommodation at significantly lower costs than London and offering investors ‘significant rental growth,’ said Carr. Manchester is already positioned as a credible alternative to London and Birmingham has seen demand increase.
Investors must also look at infrastructure projects to determine the next growth areas. In London CrossRail has already been a game-changer, but there are interesting developments further afield.
‘Cardiff, for example, does not rank very high in investors’ lists but that is set to change with the new train line that will take you to Canary Wharf in under two hours,’ said Carr. ‘As Cardiff has a good university, a skilled workforce and a strong tech sector prospects are bright. Here and elsewhere, we will continue to see strong growth in regional markets.’