There are numerous cyclical factors and long-term trends advocating for the further growth of the multifamily sector as an established real estate asset class in Europe going forward, UBS Asset Management’s experts say.
In de paper ‘Set to Grow – the rise of the European Multifamily sector’ the experts analyse the rising investor interest for multifamily assets. Looking back at 1Q11, residential investments contributed to less than 11% of the yearly CRE transaction volume in Europe. Since then, this share steadily increased to reach over 23% in 4Q20.
Rising property prices and flexibility shifting users towards renting
House and apartment prices rose faster than wages and residential rents for several years in most European countries which means that renting becomes more attractive when compared to acquiring a property. As European society becomes increasingly individualized, flexibility – in particular in terms of housing conditions – is gaining more and more popularity. This evolution is expected to give an additional boost to rental demand. Supply prospects are expected to contribute to a robust state of the occupier market in the European multifamily sector going forward.
In contrast to the recent past, we expect municipalities in the agglomeration areas and attractive secondary cities to outperform large gateway cities and their immediate surroundings in terms of rental growth in the future. Indeed, these locations typically benefit from more affordable market rents and lower regulatory risks than, for instance, the prime markets of the largest European cities. The expected additional demand boost for these secondary markets, as a consequence of more frequent home- and near-office activities, further supports this thesis.
Diverse markets
The resilience of multifamily as an asset class arises primarily because of the stable nature of its occupier market drivers. Socio-demographic trends defining both owner-occupied and rental housing demand are mostly long-term, and not as prone to economic shocks like the fundamentals of most other commercial real estate sectors. In addition, rents in the residential sector tend to offer a better inflation hedge than their commercial peers.
European countries are very diverse in terms of market size, liquidity and level of institutionalization in the multifamily sector. Standing out from the crowd, Germany appears to be by far the most established multifamily market in the continent, with a stock of around 20 million rental dwellings and an average transaction volume of almost EUR 15 billion a year.
In addition to Germany, numerous other European markets are compelling, in terms of investment universe, for building direct multifamily exposure to this region. Nordic countries as well as the Netherlands are also very advanced in terms of institutionalization of their multifamily sector and, despite a rather modest market size, have been able to attract important investment volumes in the recent years from both local and international players.
Here you'll find the complete report ‘Set to Grow – the rise of the European multifamily sector’ from UBS Asset Management.