RESIDENTIAL BRIEFING: Excellent returns for pan-European investors

The real estate market has evolved to the point where a truly pan-European residential investment strategy is possible and can deliver excellent returns, experts agreed at the PropertyEU Residential & Student Housing Investment Briefing.

‘My advice to investors would be to be brave and opt for a pan-European strategy, find the opportunities that are out there,’ Marcus Cieleback, Head of Research at Patrizia Immobilien, told the briefing at Paul Hastings’ City headquarters in London on Wednesday. ‘The residential sector’s tremendous growth over the last three to five years has changed the market, as pressure to invest and legal changes have opened up Europe for investment, so today a pan-European strategy can actually be executed.’

In the last few years institutional money has re-entered the market in a big way, Cieleback said, and ‘the long-term investment from pension funds and insurance companies has given stability and transparency to the sector, bringing residential back to the status of established sector it had 20-25 years ago.’

‘Residential is a compelling asset class across Europe and investors can now choose a basket of countries, as long as it is a good blend,’ said John German, Director of Residential Investments at Invesco Real Estate. ‘Wise and knowledgeable investors see resi as stable, and there are still areas of affordability where it is wise to invest.’

Residential investments tend to be more stable than commercial investments and, as housing is a basic need, tenant fluctuations are less correlated with the economic cycle. Resi assets have traditionally low yields but a ‘buy and hold’ strategy can be attractive in the current low interest rate environment. Low interest rates make capital growth more likely, and capital growth will gain importance in the total return performance.

There are question marks over the future, with some predicting prices stabilising if not softening. That may be true in the super-prime Central London market but not elsewhere, said Cieleback: ‘It is difficult to see resi prices falling because there is no excess supply in any of the European cities and there will not be for quite a few years.’

The imbalance between supply and demand will ensure that prices remain buoyant for the foreseeable future. The housing shortage means that development may be necessary, but not always easy. ‘We want to build to rent, but it is a challenge to find opportunities,’ pointed out German.

When investing in a city, it is important to look not just at demographic trends but also at employment opportunities, economic potential and the regulatory framework. The picture is very varied across Europe, with Germany, Sweden and the Netherlands having strict regulations, while Finland, Norway and England are at the other end of the spectrum with minimal controls.

‘Population growth only partially explains observed rental growth,’ said Cieleback. ‘Developing a pure resi investment strategy needs a clear focus and a detailed understanding of all the factors that come into play.’