The share of multifamily investment of the total commercial real estate investment in Europe has increased from 13% in 2017 to 17% in the first half of 2018, reaching almost €20.5bn, according to international real estate advisor Savills. This is the highest proportion for the sector recorded over the last five years.
In the first half of 2018 the proportion of multifamily investment (housing where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex, purchased by investors for income) ranged significantly across Europe from 8% in France to 26% in Germany, 31% in Sweden, 33% in The Netherlands and 46% in Denmark. The increase in interest in the multifamily sector is primarily driven by the rising demand for rental, particularly in cities where house prices advance faster than earnings and homeownership affordability is challenged.
The largest European market in H1 2018 was once again Germany with €8.83bn invested in rental apartments, followed by The Netherlands (€2.95bn). Approximately €2.3bn was invested in apartments in Denmark, while France and the UK also experienced a significant turnover of over €1bn. In Germany, foreign investors increased their share from a 20% five-year average to 27%, with interest expected to remain high according to Savills. In The Netherlands the shortage in the housing market has also underpinned international investor interest although local investors still dominate, accounting for 75% of the turnover. Ireland is also experiencing an imbalance between demand and supply of housing and investment in multifamily was the highest half-year turnover on record (over €350m) in H1 2018.
According to the European Central Bank and figures from Eurostats, house prices in Europe increased by 4.7% yoy in the first quarter of 2018, while rents increasing by 1.2% yoy. Price to income ratio has been rising over the past three years, in some countries steeper than others, such as Sweden (21%), Ireland (21%), Austria (15%) and the UK (12%). With the share of rent at an average of 24% of the disposable income in the EU, renting is becoming a more affordable alternative in a number of European markets.
Marcus Roberts, Director, Residential Capital Markets at Savills, commented: “Despite the fact that yields have hardened, investors continue to see the value of long-term, inflation-hedged income streams from residential properties.”
Eri Mitsostergiou, Director, European Research at Savills, said: “We believe that the European multifamily investment sector has not yet reached its full potential. Housing shortages in several markets will require further investment in apartments, which will bring new product to the market.”