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European residential on the rise

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Capital in search of safety

 

In a year where the world came to a standstill and everything was uncertain, the housing market has turned out to be the safe haven in which to invest. Over the past investment cycle, there has been a visible shift towards investment in the living sector, represented by the sector’s growing market share of total investment volumes, from around 8% in 2009 to 22% in 2020. A total of €60.7 billion flowed into the residential investment sector in Europe last year, an 18% growth in activity compared to the five-year average. In our report you will find a comparative analysis of the key factors of residential investment in several European cities: London, Paris, Amsterdam, Madrid, Munich, Copenhagen, Berlin, Rome, Vienna and Warsaw.

While established clusters dominate the share of corporate investment, comprising 72% of all investment in EMEA, markets like Spain, Italy, Russia, Poland, and Hungary, now feature in the top 20 destination countries, having surpassed $1bn of corporate investment (individually) in the last ten years.Damian Harrington | Head of Research | EMEA.

FOCUS ON PARIS

Demand drivers

Paris’s attractiveness to tourists, students and young workers provides a stable investment base for French and foreign investors. As a result, investment volumes in Paris are among the highest of the European cities analysed. Further supporting this investment is the fact that many young Parisians are dependent on the rental sector because of the city’s high housing prices. The average house price is currently above €10,000 per sqm, which means that young households have fewer options to enter the owner-occupied housing market. This ensures that there is a robust and structural demand for rental properties, a demand that is expected to persist and indeed intensify, partly due to possible adjustments to the LTI.

  • Quality of Life Index : 118
  • Current household population (‘000) : 1.864
  • Target population (20-35 years) : 24%
  • Population growth (households) : 1.40%
  • Annual disposable income per capita : €24,607
  • Affordability (owner-occupied) : 11.5 sqm

Investment drivers

Due to high demand for rental properties, the gross initial yield in Paris remains low. The difficulty in Paris lies mainly in finding suitable large-scale investment offers. This is partly why more investors are looking at alternative cities in France such as Lyon, Lille and Marseille. Nevertheless, a number of large-scale new construction projects will be launched in the coming years in conjunction with major investments in the infrastructure of Greater Paris. It is expected that, partly because of COVID-19, more households will be interested in suburban and satellite residential locations that maintain easy accessibility to the city. This could be the most important investment opportunity for international investors in the coming years. The greatest investment risk lies in the fact that the French government continues to look for ways to further regulate price increases in the housing market, such as the now-implemented Elan Law (2018). This risk is most acute in cities where there is a skewed relationship between supply and demand, such as Paris.

  • Current gross initial yield : 2.25%
  • Yield shift (2017-2020) : -5 bps
  • Rental growth (2017-2020) : N/A
  • VPV growth (2017-2020) : 18,2%
  • Market structure (% PRS) : 44%
  • 5yr average investment volume (mn) : €1,327
  • Expected changes rent regulation : Medium

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European residential on the rise

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