The private rented residential and last-mile logistics sectors are the most promising property investment sectors in Europe, according to Aberdeen Standard Investments.
‘Looking at scale, investibility and supply and demand dynamics, the strongest opportunities in Europe are to be found in the PRS or multifamily,’ said Andrew Allen, global head of investment research at Aberdeen Standard Investments, at a presentation in London.
Aberdeen Standard Investments is the second-largest European RE investment manager with over €38 bn of assets under management in the UK and Continental Europe.
Outperformance of these sectors is driven by strong demand, as increasing migration, strong population growth, shrinking household size and ‘the sheer cost of buying’ are driving demand for private rented residential, he said.
The sector also has added attractions for investors, as it is ‘an excellent diversifier, with low correlation to commercial property and less volatility.’ Vacancy rates are extremely low and the assets provide ‘stable income return with strong potential for rental growth,’ Allen said, more so than alternatives like care homes or student housing.
Population growth
In Europe’s main cities, from London to Stockholm, from Oslo to Frankfurt, supply of new residential is simply not keeping up with population growth, he said: ‘The cumulative growth in shortfall of housing unit is a consistent trend across the continent.’
Logistics is the other big opportunity, as the rapid acceleration of e-commerce is set to lead to an increase in demand for logistics asset.
Demand is already outstripping the growth in supply in many markets. ‘Europe has more attractive prime yields compared to the UK – particularly Italy and Spain - and income returns can be further enhanced by advantageous financing conditions,’ Allen said.
Last-mile logistics
Given the growth and importance of last mile delivery, demand for urban logistics is set to increase. The urbanisation trend is eroding the available land for industrial or logistics, so rents are growing rapidly, as seen in London.
While the opportunities in residential are to be found across Europe, in the logistics sector Aberdeen's researchers point to some particularly promising countries, like Denmark, Germany and the Netherlands and some specific places, such as Ile-de-France or Stockholm.
UK outperforms
The UK market has exceeded expectations, defying the uncertainty over Brexit, said Anne Breen, global head of investment process and strategy at Aberdeen Standard Investments: ‘Industrial continues to lead the way with total returns of 12.9% this year to date, followed by residential with +9.6%, hotel with 9.1% and other alternative sectors with 7.8%.’
Looking ahead to 2018, the most promising investments are in industrial in the South-East and the provinces and in distribution warehouses in London and the rest of the UK, Breen said.
