Investors are flocking to residential housing as a safe-haven asset, given the diversity of options and strong fundamentals supporting investor expansion, according to a new research report published by broker Colliers.
With more and more Europeans seeking to live in renowned business, cultural and educational centres such as London, Paris and Amsterdam, and rising incomes lifting more families beyond qualifying thresholds for social housing, the underlying supply-demand imbalance in most cities is resulting in house prices rising faster than average incomes.
This ‘affordability gap’ means many younger city-dwellers are renting for longer than previous generations before stepping on to the property ladder, Colliers said. Additionally, more empty-nesters are entering retirement age, creating opportunities for investors to provide and expand the availability of rental and owner-occupied housing, including in the build-to-rent, build-to-sell, private rented, co-living, senior and student housing sectors.
A total of €60.7 bn flowed into the residential investment sector in Europe in 2020, an 18% increase in activity compared to the five-year average. The ubiquitous nature of the residential sector and the broad range of opportunities it offers will lead to a rise in market share of the ‘beds’ sector relative to other commercial real estate types, reaching 30% of investment volumes in this new cycle as activity expands and deepens across European countries and cities.
‘Given the underlying demographic and market dynamics, investors are increasingly seeing residential property as a relatively stable, defensive asset class amidst the huge disruption to economies and behavioural patterns caused by the pandemic,’ said Richard Divall, Colliers’ director and EMEA Head of Cross-border Capital Markets. ‘More and more pension, insurance and private equity funds are increasing their allocations to what looks set to remain a compelling opportunity for the long term, especially given the turbulence of the past year and the uncertain outlook for many other asset classes.’
According to Colliers research, Paris, London, Amsterdam, Munich and Manchester rank as the five least-affordable cities for owner-occupiers, in terms of the cost of floor space relative to average local income levels. Buyers can almost double the amount of space they can afford in the likes of Dusseldorf, Cologne, or Marseille relative to these cities. In Warsaw, based on average household incomes, the typical buyer can purchase three times as much residential floorspace as in Paris. This reinforces the attractiveness of these cities for the private rented sector, as the average age of first-time buyers widens to 34-years of age. Additionally, the relatively high cost of housing in these cities is also pushing investors into alternative secondary and emerging residential market destinations, where there is potential upside to capital values.