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Europe’s investible residential landscape

  • European demand fundamentals for private rented residential are largely very positive and contrast markedly with those of many commercial property markets. There are multiple reasons for the strong demand: increasing migration, strong population growth, later marriage, shrinking household size and the sheer cost of buying in some markets.
  • The situation is exaggerated even further in some European countries and especially in certain ‘winning cities’. The Nordic capitals, London and Amsterdam are particularly affected by surging demand.
  • Supply is already constrained across Europe and ongoing capacity constraints are commonplace. Development levels have not been able to keep up with demand. Reasons include planning restrictions such as green belts around cities and the preservation of historic areas, a lack of bank funding for new development, and rising environmental standards that are increasing the cost and complexity of developments.
  • Germany is Europe’s most established investible market; it’s as big as all the other markets put together and ten times the size of the second largest investible market, the Netherlands. Nonetheless, significant investment opportunities are rapidly emerging in the Netherlands, Sweden, Switzerland, Denmark, France and increasingly the UK.
  • High-quality and consistent international private rented residential models are emerging, which could be transferable across borders. That said, the quality of operators and management varies enormously at the moment. Pricing estimates can be inconsistent. Our initial analysis confirms that rental costs in Germany, the biggest market, look very affordable relative to incomes.
  • Accessing stock is likely to be competitive given persistently low interest rates and government bond yields, and as the residential sector’s ability to deliver secure income returns becomes more recognised by institutions. Forward-funding developments are a potential solution to accessing stock for investors.
  • Our key country-level conclusions are detailed in the paper. However, we emphasise that residential markets can differ enormously between countries and within individual cities; local expertise is key.

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