GLOBAL - Multi-family housing has been identified as the favoured sector for investment in the US by a number of European pension funds, a position backed up by new research from Pramerica Real Estate Investors.

Germany's WPV and Denmark's Sampension are two pension funds that have said they are keen to gain exposure to the residential sub-sector.

Henrik Kolind, head of property investments at Sampension, the management company for three Danish pension funds, said multi-family housing was likely to be "the first to show the way out of the crisis in the US".

Hermann Aukamp, chief investment officer for real estate at German pension fund Nordrheinische Ärzteversorgung (NAEV), who advises other German pension funds on their real estate investments, said this was true of German pension funds generally.

He said: "The US is still difficult - unemployment stays high, the office market is under pressure valuation-wise and demand-wise and it will stay that way for quite some time.

"Retail is the same at the moment, so the only thing investors are looking for is multi-family. This might be a safe choice."

Meanwhile, a new report by Pramerica, The Early Innings of an Apartment Recovery, has suggested strong demographic trends, rising household formations and an ongoing shift to rentals from homeownership should produce favourable fundamentals in the sector over the next few years.

The report said: "The anticipated growth in net operating income for apartment properties and the segment's relative stability have created intense demand for apartment properties among investors that shows no sign of abating. The result has been an increase in transaction volume and rising property values."

The combination of rising demand and unprecedented low supply should push occupancies and rents in a positive direction, Pramerica said, although it conceded the strength of the recovery would depend on the near-term trajectory of the economy.

Weak economic growth or a double-dip recession will limit tenant demand for apartments, but this could also accelerate the move away from ownership, which would limit the impact on the sector, the report said.

Conversely, demand for multi-family units will be weakened if homeownership rates stabilise at higher than expected levels.

The report added: "Multi-family properties generally have no difficulty accessing low-cost debt, in large part due to the liquidity provided by government sponsored enterprises.

However, the agencies are in the process of being reorganised, so their future role is uncertain."