Boom in European 'multifamily' investment paves way for continued growth across core and emerging markets - Savills

Multifamily (or PRS as it is known in the UK) now accounts for 14% of total real estate investment in Europe and half of all real estate investment activity in Denmark, a third of the activity in Sweden, 23% in Finland, 22% in Germany and 17% in the Netherlands, according to international real estate advisor Savills.

Investment into the sector rose 143% between 2010 and 2016, says Savills. Together Germany (46%) and Sweden (17%) account for two thirds of all European multifamily transactions, followed by the UK (9%) and the Netherlands (9%).

Multifamily is now regarded as a core sector in many European countries, including Denmark, Germany, Netherlands and Sweden. These markets still offer favourable market conditions for investment in terms of liquidity, demand/supply conditions and rental growth prospects in stable economic environments with overall positive demographic trends, says Savills.

Proportionally, however, the greatest growth is likely to come in the multifamily markets in the UK, Republic of Ireland and Norway, according to Savills, as the sector is slowly becoming more institutionalised. Due to strong fundamentals, including current housing undersupply and their potential for high returns compared to more established markets, institutional multifamily ownership in these markets is likely to grow in the coming years.

The traditional core group of residential investors, which to date has principally been dominated by large listed institutions focusing on German, the Netherlands, Denmark, Sweden is now being broadened by the arrival of overseas funds and asset managers. These investors view the wider European multifamily sector, alongside student and elderly housing, as a point of entry into an increasingly attractive and secure institutionalised residential market, says Savills.

Marcus Roberts, Director of Residential Capital Markets, Europe, at Savills, comments: “We believe that investor demand for the multifamily sector will be sustained and even rise over the coming years. The conditions for investors are favourable, since population growth and urbanisation will continue to drive demand and economic trends will largely remain positive. In addition, in most markets multifamily rents are index-linked offering a hedge against inflation, giving the sector an extra attraction.”

Over the past five years prime net multifamily yields have moved significantly and are now as low as 2.75% in Stockholm and Berlin, 3-3.75% in London, Paris, Oslo and Copenhagen, and up to 4.25% in Dublin and Madrid, says Savills.

Marcus Lemli, head of European investment at Savills, adds: “€15.9 billion was invested in multifamily assets in Europe in the first half of 2017 as investors increasingly hunted for income-producing assets. The markets with well-established institutional residential sectors will continue to perform well, but more nascent markets could be attractive to an increasing volume of investors, such as insurance companies, pension funds and sovereign wealth funds, who are seeking long-term, index-linked income, lower volatility and good fundamentals.”

Read Savills European Multifamily report in full here.