EUROPE - Pension schemes and major insurers will mop up European residential as fragmentation and complex local regulations keep all but the largest investors out, according to German property company Patrizia.
Marcus Cieleback, head of research, told IPE Real Estate: "The appetite will be there, but only among large European pension funds and insurers. These have the resources and money to spend on a pan-European portfolio. Smaller pension funds will not.
"There is no appetite for pan-European residential as there is for office, and the market won't get any easier because it's nation-specific. We can't really speak of a pan-European residential market. We might have an EU area, but residential regulations are national, not pan-European."
In research published this week, Cieleback used multiple indicators to forecast the likelihood of a residential bubble, including housing price-to-income ratio, mortgage payment-to-income ratio and price-to-rent ratio.
Although the research concluded a pricing bubble was unlikely in rental markets, he anticipated corrections in owner-occupied markets in Ireland, Spain and the Netherlands, which face high vacancy rates to 2014 driven by excess construction in recent years.
Cieleback distinguished between troubled owner-occupied residential and expanding rental markets that potentially offer savvy investors income returns.
In some cases, he argued, an expanding rental market could benefit from bubbly price trends in the owner-occupied market.
"If you look at Sweden, the risk of the rental market is limited," he said. "It's only the owner-occupier market that is high risk."
According to his research, markets where owner occupation dominates tend to lack a functioning rental market.
However, the recent crisis has opened opportunities for investors to profit from an improving rental market "despite, or precisely because of, a possible price bubble in the home ownership market".
Cieleback added: "If you go for residential, you always have to justify the difference from the owner-occupied market.
"People recognise there is a stable cash flow in the residential rental market. It isn't like office, where tenant risk is very high and it could take you six months or a year to find a new tenant if the old one leaves."