The gravitation of European institutional capital and private equity to the residential sector is linked to its strong performance compared to other asset classes, noted Mark Weedon, head of UK Alternative Real Estate at IPD.

The gravitation of European institutional capital and private equity to the residential sector is linked to its strong performance compared to other asset classes, noted Mark Weedon, head of UK Alternative Real Estate at IPD.

‘In the past 12 years, the sector has generated total returns of 10% a year. The UK sample includes very prime Central London, but even excluding central London, the UK yielded 9.1% over the 12-year period.’

Weedon made the comments earlier this week during PropertyEU's European Residential Investment Briefing held at CBRE's Henrietta House office in London.

Capital appreciation has been a key component of the high UK yields, Weedon said. By contrast, Germany, Switzerland and the Netherlands have generated income returns of 5-6% over the period with very flat capital performance.

Overall, the UK residential market saw a massive 20% price fall in 2008, but has shown muted growth since then. One notable exception has been London, particularly prime central London which has seen double-digit house price growth over the last couple of years, Jennet Siebrits, head of residential research at CBRE, said. London has the strongest potential driven mainly by overseas investors and cash rich buyers. However, it is starting to wane as the impact on affordability starts to feed through.

Broadly speaking residential property generates an attractive outlook at a low risk, stated Marcus Cieleback, group head of research at Patrizia Immobilien. ‘It has a different risk profile. The risk of losing cashflow on multifamily in decent locations is smaller than for other assets. But in some markets it is quite hard to find the stock.’

At the same time, investors are adapting and seeking ways to add value, for example by buying land and financing development, he added. ‘That will bring a more diverse structure to the residential market, just like offices.’

Nevertheless, pressure from the demand side will continue to support the rental sector, he predicted. ‘We’re seeing 1% new build per year at most; that’s not a big shift. We’ll have to make do with existing stock – that’s it.’