- London seen as ‘Outperformer’ alongside Paris, Stockholm and Hamburg
- Study predicts returns of 6-8% per year achievable over the next five years
- 2017 European residential investment volumes highest since records began
- Half of all cross-border residential transactions executed by non-European investors
PATRIZIA Immobilien AG has launched its eighth PATRIZIA INSIGHT study on the European Residential Markets which for the first time includes a major new European City Ranking – a matrix which combines long-term attractiveness indicators alongside liquidity within 119 European cities in order to assist investors optimally diversify their portfolios by location and risk profile.
The matrix divides the ranked cities into seven sub-groups: Outperformers, European average, High performers, Stabilisers, Economic plays, Liquidity plays and Laggards. Dr Marcus Cieleback, PATRIZIA’s Group Head of Research and author of PATRIZIA INSIGHT, explains the characteristics of some of these sub-groups and how using them facilitates portfolio diversification. “The ‘outperformers’, including London and Paris but also Stockholm and Hamburg, are attractive and highly liquid, however pure buy-and-hold investors pay for this with low-returns. Cities considered ‘average’ from an attractiveness and liquidity perspective, for example Edinburgh, Lisbon and Marseille, offer returns that will compensate for the long-term risks taken — and active management of existing portfolios might even enable above-average returns. The group we call ‘economic plays’, featuring for example Luxembourg, contains cities lacking liquidity, but which will, in Luxembourg’s case, continue to attract businesses and people, and its increasing demand for housing will support the development of an institutional multi-family housing market. Capital growth will therefore compensate the early movers for the risks they take.
“This differentiation will enable investors or fund managers to optimally weight allocations to each sub-group of cities in order to create a truly diversified European residential portfolio,” says Dr Cieleback.
The INSIGHT report reemphasises Europe’s stability as an investment market, pointing to GDP growth as well as falling youth unemployment as indicators of the Continent’s strength. It also explains how to ‘win’ with demographics, where understanding regional differences is particularly important. The INSIGHT study also highlights the global nature of European residential investments: around half of all cross-border investments in the European residential market, with the majority focused on the UK and Germany, are made by non-European investors. This points to the “increased professionalisation” of institutional residential investments, says Dr Cieleback. “This is particularly relevant for those acting as a global provider of European real estate investments. Residential investment volumes in 2017 are at the highest levels since records began due to the sustained demand from institutional investors for low-risk investments.
“While the expected income returns in the residential market in the coming years will be lower than any historical 5- or 10-year average, in general buy-and-hold multi-family housing strategies will still generate a total return in the range of 6-8% per year in Europe over the next five years,” says Dr Cieleback.
The PATRIZIA INSIGHT European Residential Markets 2017/2018 study can be downloaded from the PATRIZIA website here.
PATRIZIA Immobilien AG:
PATRIZIA Immobilien AG has been active as an investment manager in the real estate market across 15 European countries for more than 30 years. PATRIZIA’s activities include the acquisition, management, repositioning and sale of residential and commercial real estate through its own licensed investment platforms. As a global provider of real estate investments in Europe, PATRIZIA operates as a respected business partner of large institutional investors and retail investors in all major European countries. Currently, the Company manages real estate assets worth almost EUR 20 billion, primarily as a portfolio manager for insurance companies, pension fund institutions, sovereign funds, savings and cooperative banks and as co-investor. For further information, please visit: www.patrizia.ag.