The resilience of the European real estate market amid economic and geopolitical challenges is a topic of great importance and interest to investors and market watchers. The PATRIZIA strategist provided an assessment based on various factors and market indicators.
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Transaction volume and segments of the residential real estate market
In a time of economic upheaval caused by inflation and rising interest rates, Dr. Marcus Cieleback, Chief Urban Economist at PATRIZIA, conducted an in-depth study of the European residential real estate market. His analysis, entitled “European Residential Markets 2023/2024”, highlights the sector’s resilience, even as some developers struggle and planned projects are either canceled or postponed.
Dr. Cieleback begins by looking at global and European residential real estate transaction volumes, which are down significantly in 2022 compared to the previous year. However, he points out that despite the general decline, the market in Europe is still characterized as “clearly more cautious, more cautious”. Although the volume of transactions has decreased, he points out that they are still taking place, but at a more specialized, informed and much more specific level. The relative robustness of the European market also underlines the continued international investment interest in EMEA, which sees European residential real estate as an attractive investment case with good diversification and stable return opportunities.
The analysis further delves into specific segments of the residential real estate market, particularly specialty uses. Student housing is highlighted here, the volume of transactions fell by only 14 percent. Cieleback interprets this resilience as an indicator of fundamentally positive market conditions that continue to exist despite the current economic challenges. He cites increasing demand due to megatrends such as urbanization and demographic changes, which cannot be adequately served due to a lack of construction activity. This contradiction tends to lead to an increase in prices and rents, as it goes on to say.
The study places particular emphasis on tight supply, which is identified as a key factor in the resilience of the rental housing market. Cieleback points out that this tight supply provides institutional investors with stable income streams and attractive risk-adjusted returns in an inflationary environment. He sees strong demand, rising interest rates and growing demands for sustainability aspects of new buildings as key drivers of a solid rental market.
The supply gap, ESG and demographic change
Another key theme of the analysis is the shrinking number of completed projects and projects in Europe, excluding Ireland. The resulting supply gap affects low- and middle-income households in particular, placing the onus on both investors and project developers to fully take into account ESG (environmental, social, governance) criteria. The challenge is to dynamically implement regulatory changes, which requires greater agility in planning, but should not prevent long-term investors from investing and acting successfully based on a deep understanding of the market, it said.
Demographic changes and the increasing number of one-person households, which increased by an average of 7.2 percent in the EU between 2010 and 2020, with a significant increase of 19.5 percent in single-person households, are seen as another opportunity identified in the European residential real estate market. Cieleback notes that this group has greater demand for rental housing throughout the life cycle, especially young and urban workers who are early in their careers and whose jobs may change in the future. Changes in life circumstances, such as family planning or career changes, can also lead to a move, and in many cases the new apartment is initially a rental apartment. It is therefore essential that rentals are generally attractive to meet these needs.
Cieleback points out that despite some challenges, the fundamentals of the housing market have remained largely unchanged. He points out that the market is still characterized by tight supply and rising rents, which offers a low correlation with the financial market and a high level of protection against inflation. Even as bond yield spreads narrow, the true quality of a property is revealed in its stability, location and the social impact it has on its location. Some European cities such as Malmö, Vienna, Helsinki, the Randstad region, the first seven German cities or Paris, as well as Barcelona and Dublin, are identified as cities with structural opportunities, according to Cieleback.
Conclusion and final findings
In the context of demographic changes and the growing number of single-person households, the analysis also recognizes cross-border benefits in concepts such as student housing and senior housing. While metropolises such as Paris, London and Madrid attract many international students, Vienna and Stockholm, with more domestic students, are less dependent on international students. These differences in student housing could reveal opportunities for long-term investment in specific geographic areas.
Cieleback concludes that the European residential property market remains a solid foundation and offers opportunities for long-term investors if they know where to look for those opportunities. It emphasizes the importance of a proper understanding of the market and regional dynamics in order to make the most of the opportunities available.
In conclusion, Cieleback’s comprehensive analysis presents an optimistic view of the resilience of the European residential real estate market, despite the current economic uncertainties and challenges. Looking at different market segments and demographic trends, the research highlights long-term investment opportunities and the continued attractiveness of the residential real estate sector for investors willing to adapt to specific market needs and opportunities. The analysis also sheds light on the social responsibility of investors and project developers in meeting ESG criteria and dynamically responding to regulatory changes in order to operate successfully in this sector.
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