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Housing crunch underpins solid European residential investment outlook

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Colliers research shows substantial growth in European residential investment volumes in 2021

Europe’s fundamental mismatch between voracious housing demand and limited supply is driving massive investment growth in the residential sector and will continue to generate opportunities even amid geopolitical and economic uncertainties, according to a new report by Colliers, a global leader in commercial real estate services and investment management.

Colliers’ latest EMEA: European Living Snapshot finds that residential investment volumes surged 89% over the course of 2021, and for the first time crossed the 30% line as a proportion of real estate investment in Europe. Underlying this growth is what the report describes as “strategic levels of under-supply to meet urban household formation and growth.”

Luke Dawson, Managing Director Cross Border Capital Markets, commented, “Amid current economic volatility, this long-term imbalance makes the living sector attractive to capital seeking a defensive, contracyclical investment with a variety of routes to market. Build-to-rent (BtR), for example, is gaining in popularity due to the limited availability of existing stock, alongside investment into social and affordable housing.”

Another notable hotspot across much of Europe is purpose-built student accommodation (PBSA), particularly around universities with an international reputation that can attract students from near and far. “We’re seeing more activity concentrate on niche areas related to specific demographic factors,” said Damian Harrington, Head of Research, EMEA and Head of Global Capital Markets Research, “PBSA is attracting a lot of interest in markets like Italy, Spain and Central and Eastern Europe.”

One clear trend is that investor interest is expanding well beyond Europe’s largest and most famous urban areas, with lower-tier cities also seeing a notable uptick in activity in 2021. In this respect, the European market is beginning to mirror the US, where residential investment is increasingly targeting smaller cities such as Charleston, Tucson and San Antonio.

“The migration to tier-2 and -3 cities is increasingly evident in Europe’s more mature markets,” said Paddy Allen, National Capital Markets, UK at Colliers, “Places like Gothenburg and Manchester are attracting more attention as investors expand their search for yield.”

Report highlights

The range, scale and strategies for residential investment vary considerably across the globe. In Europe, the strongest growth markets have also been those benefiting from a significant share of residential investment. These include the Nordic cities of Stockholm, Malmo, Gothenburg and Copenhagen. Berlin tops the bill, Barcelona is a fast-moving market, with investment levels flourishing courtesy of an expanding residential sector, as are the likes of Madrid, Helsinki, Manchester and Dublin.

Mega-deal in Germany moves it to pole position

Vonovia’s takeover of Deutsche Wohnen in late 2021 created a housing giant with a portfolio of some 568,000 apartments. This cemented Berlin’s position as the fastest-growing residential investment market in Europe, already supported by Germany’s unusually high ratio of renters to owner-occupiers, and now potentially by an influx of new people seeking housing from Ukraine. Challenges ahead include tougher energy efficiency regulations and rising construction costs.

Strong investor appetite in France curbed by tight supply

France logged €7.4 billion of residential transactions in 2021, up 7% on the year before and double the total for 2019. While investor interest is strong, a very low asset turnover rate is limiting activity. One notable trend is the entry into the market of former social housing operators, which are taking sizeable stakes in new housing portfolios under development.

Ireland grapples with huge housing shortfall

Ireland is facing a housing crisis, with the supply of homes either for sale or for rent at record lows and home price inflation surging in 2021. This has inspired a bulging pipeline of BtR construction, supported by the forward funding or forward sale of units to domestic and international investors. New BtR blocks are exempt from a rise in the rate of stamp duty to 10% on the purchase of 10 or more residential units – a recognition of how important such investment is to solving the housing crunch.

Students and young renters key for Italy’s market

Italy is experiencing strong residential investment in cities with renowned universities, such as Bologna, and those with a large population of educated young professionals and high employment, such as Milan. Investors are entering a market that has traditionally been dominated by owner-occupiers and small private landlords; building better-quality housing stock offers an opportunity, but construction costs are rising sharply.

 

BtR shows strength in the UK

Over 14,500 BtR units were completed in 2021 in the UK, up 24% on the year before, while investment climbed 33% to a record €5.6 billion. The growth has led to fears over the possibility of oversupply. However, evidence from Manchester, the UK’s most mature BtR market, suggests otherwise, with rental inflation rates there among the highest in the country. BtR currently only accounts for 9% of total investment volumes into direct real estate in the UK, compared to 35% in the US, making investment saturation unlikely anytime soon.

View our EMEA: European Living Snapshot report here.


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Anna Silkstone

Head of Content

London - West End

Anna is an experienced B2B marketer, communications and business development adviser. She specialises in content creation and the resultant campaign output. In her role as Head of Content, EMEA she develops compelling communications for multi-channel direct and social marketing, media and internal communications. This is done in partnership with the business line leaders, research, digital and creative leads.

Anna has developed all of her career experience in the real estate industry. This has included leading on market response campaigns, thought leadership content development, research report identification, production and launch, client engagement and market profiling campaigns, proposal responses and bid presentation management, value propositions for marketing material, trade show presence, stakeholder management, internal and external communications, and building a remote-working marketing team. 

Prior to Colliers Anna worked at the global law firm, Dentons LLP as a Senior Business Development Manager for the Real Estate team and latterly as Head of Campaigns for the UKIME region, focusing on Environmental, Social and Governance. Anna also worked at CBRE for over two years and supported the Occupier Services section of the EMEA business. Before CBRE, Anna was at Lambert Smith Hampton for nearly nine years in a regional marketing role and later as a UK campaign manager. 

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United Kingdom

Luke Dawson

Managing Director Cross Border Capital Markets

London - West End

I started with Colliers in 2003 working as Director of Corporate Development with a focus on mergers and acquistions across the globe.  After leading the acquisitions of the Colliers businesses in Russia, Ukraine, and South East Europe, I relocated to the Czech Republic in 2007 to take on the role of Head of Operations for Eastern Europe.  I was responsible for the day-to-day oversight, integration and coordination of the 13 countries.  In 2012 I accepted the position of Regional Managing Director for South East Europe.  In this position I was responsible for business development, key accounts, investment sales and overall business accountability.

In 2014 I left Colliers to run one of the largest private family offices in the middle east.  This involved leading all asset management, acquisitions and dispositions across the globe and the overall leadership of the organization. 

In early 2017 I returned to Colliers in my current role.  My focus is on driving our investment sales business across Central Europe.  This means strategically managing regional investment relationships, connecting opportunities and guiding the overall strategy of the service line.  I also have leadership responsibility for the Central Europe businesses as a whole and work closely with the local leaders to grow our businesses.

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United Kingdom

Damian Harrington

Head of Research

London - West End

Damian Harrington is a Director and Head of Research for both Global Capital Markets and EMEA at Colliers. He has over 20 years of experience in the real estate industry living and working from various locations across EMEA including London, Dubai, Prague, Helsinki and Amsterdam. Damian is responsible for producing research for internal and external clients. His expertise helps to provide clients with global capital market trends and analysis, and connects them with strategic and actionable insights, such as the changing nature of global capital and the impact on global capital flows. Damian has produced numerous research papers and generated analysis of markets across all asset types - from residential to offices, retail to logistics and hotels to niche sectors such as life sciences, air cargo and data centres. Damian is a member of the EMEA location strategy team and a key member of Colliers ESG focus group.  He speaks regularly at internal global conferences, external industry events hosted by GRI, ULI and other key industry bodies, plus key annual events such as MIPIM and EXPO REAL.

Damian holds a Masters degree in European Property Development and Planning from University College London, a BPI Bachelor of Planning from the University of Amsterdam and a BA (Hons) in Town and Country Planning from Manchester University. He is also a qualified surveyor, holding an MRICS with the Royal Institute of Chartered Surveyors.

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