Property and life cycles
Between 2020 and 2030, the demographic pressure on the larger urbanised regions will continue to increase
in some of the major metropolitan areas of the Euro Zone as a result of how attractive they are in terms of jobs and strong social change. In fact households are increasing in number just as they continue to become smaller. This stems from changes in living styles (more separations, fewer large families, etc.) which are logically fuelling the demand for more housing.
Three out of ten European habitants are tenants. However, the situation varies from countries where the majority are home-owners (ex-Eastern bloc countries), or tenants (Germanic and Scandinavian countries) and where there is a balance between the two (France, Benelux, United Kingdom, Ireland, etc.). In Southern Europe the mentalities seem to be heading more towards renting.
The European private and collective residential investment market
The private and collective residential, often referred to as just ‘residential’, has seen constant growth over the last decade it now includes new residential forms such as co-living, and is being increasingly solicited in institutional investor portfolio diversification strategies. €279 Billion has been invested in Europe for the period. Since 2018, the residential market has become the asset class with the second highest investment level, behind office properties.
The European private and collective residential market is largely dominated by Germany which is responsible for 38% of the total capital invested between 2010 and 2019. Holland, Sweden, Spain, United Kingdom, France and Ireland are also attractive destinations for investors with 45% of the funds committed.
“Prime” returns of over 5% can be achieved in certain Northern European cities in Belgium, Holland or Ireland.
Private and collective residential: a highly resilient asset class in times of crisis
Whilst the residential market has had a strong image as a refuge value during the recent crises, it would be wise to consider this in more detail. In fact, the 2008/2009 economic and financial crisis and the European sovereign debt crisis were not absorbed by all of the European metropolitan areas in the same way. The European markets with a high economic dynamic (Berlin, Munich, Amsterdam, Paris, Milan) saw their fundamentals (rent levels and prices) get stronger whilst certain Southern European metropolitan areas (Athens, Barcelona, Madrid, Rome), or those which suffered from an over-representation of the financial sector in their economy (Dublin), have been through rather erratic series of adjustments and recoveries.
Whilst the economic crisis we are currently facing will be quite broad, our Euro Zone residential price forecast model appears to register a rise of around 2% in the annual averages for 2020 to 2022. For the moment the market seems better prepared to face this crisis than it did for the last two.
Our analytical table for European private and collective residential investment
Primonial REIM has constructed a statistical model for the European residential markets which provides a means to understand the solidity of their fundamentals, their value potentials and their position within the property cycle. In order to identify the most attractive markets, we have analysed a number of different criteria within a single matrix (Demographic, economic and real-estate indicators).
We have attributed scores to the various residential markets analysed. Three major market categories have been identified. Germany, Holland, France and Austria have an interesting return/risk relationship. Spain, Finland and Belgium are markets with good fundamentals but which will be facing some difficulties within their respective residential markets. Finally, Portugal, Ireland, Italy and Greece are markets with either volatile fundamentals or where the residential market could be rendered unstable over the next two years.
In this context we recommend looking towards the more resilient metropolitan areas with the following characteristics:
• a deep market, where there is liquidity in the residential blocks;
• potential income flows based on the quality of employment and the population’s disposable incomes;
• an attractive position in the price and rent-level cycle.
With a university education in local economic development, Daniel While began his career as business establishment consultant to local authorities. In 2006, he joined the Institut de l’Epargne immobilière et Foncière as analyst, and specialised in the world of unlisted real estate funds (SCPIs and OPCIs for France).
He is co-author of the book Les OPCI published by Delmas (September 2008). He joined Primonial REIM in 2017, where he held the position of Development Director, then Research & Strategy Director from 2019.
Henry-Aurélien Natter joined Primonial REIM as Research Manager in January 2018. He has the mission of developing the analyses of the Research & Strategy Department on the real estate markets, the economy and capital in France and in Europe.
Henry-Aurélien Natter began his career at Les Echos Etudes (formerly Eurostaf), then at C&W (formerly DTZ), and lastly at BNP PRE, where he acquired solid and varied experience in real estate research, strategy and finance. He is qualified with an AES degree in Business Management, a Masters Decree in management and SME management, and an International Master in commerce and marketing.
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