Raising returns in a low-rate climate

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The European residential property markets offer promising opportunities for institutional investors who are looking for attractive returns in today’s low-rate investment landscape. Which markets are in their sights? 

The heterogeneous nature of Europe provides a wealth of individual investment opportunities. Each national European residential market offers significant diversification benefits, not only from a global perspective, but also within Europe. Each provides a variety of investment products within this residential universe.

Low-rates, high capital investment flows

The low-rate climate is driving the upturn in cross-border residential investments within Europe and the Eurozone, and also from sources outside the region.

Since the end of 2014, institutional investors from the US have invested €6 billion in residential properties in Europe, making them the largest residential cross-border investor group in Europe. Canada is ranked second, with investments of just over €3 billion. The UK is the chief target for both groups.

Within Europe, cross-border capital flows are also on the increase, as our infographic shows. Institutional investors have created a complex, individualized web of asset allocations across Europe. While the Netherlands is one preferred option for German investors, Denmark attracts more investments from Sweden. According to a recent MSCI-study these are the countries that generally have less volatility in the housing markets.  

Spain attracts interest both from within Europe and from the US. Germany remains the main recipient of European investments, while the UK is the preferred choice for more global investors. More details of these emerging investment flows can be found in PATRIZIAs European residential market report: “Insight European Residential Markets 2016/2017”.

Germany: the safe haven

The characteristics of the German residential market results in strong institutional demand for residential assets.

Due to the strong demand and continued low interest rates, Germany is still considered a safe haven for real estate investments; a haven that offers not only stable income but capital protection as well

Due to the strong demand and continued low interest rates, Germany is still considered a safe haven for real estate investments; a haven that offers not only stable income but capital protection as well.

The UK, despite the uncertainty surrounding the terms and timetable of Brexit, also remains attractive for investors.

The investors obviously do not make their decisions dependent on Brexit and do not expect a slump in the British real estate market in the medium to long term.

The UK and Germany offer some of the best environments for residential development activity, despite the recovery in construction activities in the regions. Other European markets, however, should not be ignored.

Cross-border investments across Europe

Given the strong competition for assets, many institutional investors are understandably looking beyond their domestic markets to increase their exposure to real estate.

Despite this globalization, real estate markets retain their local characteristics and performance.

A diverse investment landscape is emerging, with considerable diversification benefits in connection with a global residential strategy.

To understand the differences in the total return performance of each market, it is crucial to have in mind the political, demographic and institutional landscape and the changes underway in each country. 

Dr. Marcus Cieleback, group head of research at PATRIZIA