PATRIZIA presents Report on the European Residential Market

The residential rental markets in Sweden, Denmark, France and Germany offer above-average attractiveness for residential real estate investments by institutional investors. That is the upshot of the report on the European residential property market drawn up by PATRIZIA. Both supply and demand factors were analyzed in the study and assessed in terms of their medium to long-term development. “Owing to the financial crisis, residential property has returned to the focus of institutional investors. Of course, the growth in interest is also linked to an increased need for information,” says Wolfgang Egger, Chief Executive Officer of PATRIZIA Immoblien AG. “Our study makes a valuable contribution towards accommodating the greater transparency requirements of the residential property markets.”

Based on the specific structural characteristics of national owner-occupied and rental property markets, various influencing factors such as lending practices, developments in population and the size of households, urbanization trends and the completion of construction projects were investigated and compared with one another in an attractiveness matrix. According to this the markets for rented residential property in Lithuania, Hungary, Poland, Estonia and Austria display below-average attractiveness. “When interpreting the results it must be borne in mind that we are talking about national averages,” says Dr. Marcus Cieleback, Head of Research at PATRIZIA and author of the study. “It goes without saying that individual regions within the countries may deviate from these.”

From a medium to long-term perspective, demand for housing is primarily determined by demographic developments. In terms of population development in the period from 2005 to 2050, significant and varying developments can be observed in the individual countries and regions of Europe. These range from a decrease of approximately 23 % in Latvia to an increase of almost 50 % in Ireland. However, there will be a general aging of the population in all countries in Europe during this period. The increase in the so-called median age will increase by between 3.1 years in Sweden and 14.2 years in Poland. The reasons for this are higher life expectancy and birth rates nearing historic lows. The development of the average household size is having a stabilizing effect on housing demand in countries affected by the decline in population and resulting in an increase in the demand for living space per capita. This is a procedure that is expected to have a positive effect on housing demand in the years to come and at least mitigate the consequences of the decline in population, particularly in Central and Eastern European countries.

The global urbanization process which has been going on for years is running parallel to this demographic development. The urban population is continuing to grow in many countries as a result of internal migration despite the fact that the total population is already declining. For this reason, the urban population in Europe is only expected to decline in the Baltic States, Poland and the Czech Republic. However, even here the decrease in the urban population will be considerably less than that of the total population. The rate of urbanization will therefore continue to increase in all countries in Europe up to 2050, with a corresponding impact on city development which will have to cope with a rising demand for a near-uniform surface area of land. “Living concepts that consume as little surface area as possible such as high-rise apartment buildings could therefore undergo a renaissance. However, this will only happen if there is a change of image,” says Cieleback. “At present the term ‘high-rise apartment building’ is primarily still associated with socially deprived areas.” The supply analysis shows that residential property markets featuring high rates of ownership (e.g. Spain, Ireland and the United Kingdom) experienced the largest price increases between 2003 and 2007. In some European countries, the result of these price developments was huge, primarily speculative construction activity. The number of residential buildings completed reached a peak in 2007 of over 2.6 million units across Europe. Around a third of these were accounted for by Spain. With approximately 210,000 buildings completed, a share of just below 8 % was all that was attributable to Germany, Europe’s largest economy. It comes as no surprise that owing to the financial crisis the Spanish residential property market has undergone the largest price corrections while housing markets with large rental rates (Germany, Switzerland) have developed stably.

Cieleback: “High ownership rates on the housing markets can certainly slow down economic development. For one thing, speculative price bubbles are considerably more pronounced there and in addition self-occupied property reduces job flexibility, thus making it difficult to bring together employers and job seekers across regions efficiently. In this context as well the focus is shifting back more strongly to residential rental markets. Initial developments, such as in the United Kingdom, are already indicating that it has been recognized how important active residential rental markets can be for a national economy.

source : PATRIZIA