All over Europe – the housing markets of metropolises and regional locations are showing impressive growth rates – people continue to move to cities and urban centres, rents and purchase prices are rising, yields are falling. The analysis of the European housing markets can be summed up in this short formula. But in spite of this "perfect storm" from an investors approach, the developments that put those responsible under pressure are also becoming visible.
Affordable housing is to be created, the social balance of the residents is to be ensured and the "city of short distances" is to be found as an answer to the dramatically changing mobility requirements. Never since the late 1970s has the discrepancy between rents and purchase prices been so pronounced in Europe. Urbanisation, density and land value increases go hand in hand.
Once again Catella Research has analysed the commercial residential real estate market of 59 cities in 19 countries in Europe. In addition to that, we wanted to know how big is the impact of economic power on the residential prices and measured the share of the national GDP on the local market. The result is hardly surprising: In 15 countries, the capital city generates the highest GDP and consequently the prices on the residential property markets are also the highest here. With the exception of Austria, Germany, Spain and Switzerland, where the residential prices in the capital are not the most expensive.
Here are further important results of our analysis:
- The average monthly apartment rent (all years of construction) of our 59 analysed cities currently stands at EUR 15.13 per sqm.
- The cheapest apartment rents can be found in Riga (EUR 8.50 sqm) followed by the Belgian city Liège with EUR 9.00 per sqm on average.
- On average, the residents of Geneva (EUR 28.50 sqm), Paris (EUR 27.90 sqm) and Dublin (EUR 25.99 sqm) spend the most money on a rented apartment. Only Oslo and Luxembourg still reach the EUR 25.00 sqm mark.
- The average purchase price for an apartment in Europe (all years of construction) currently amounts to EUR 4,594 per sqm. The prices range from EUR 1,450 per sqm in Riga to EUR 16,420 per sqm in London.
- The average European prime net yield for multifamily houses is currently at 3.72 % and thus even lower than for office properties. Compared to our last analysis in Q1 2018 average prime yield decreased by -25 basis points in 15 months.
- The lowest yield of all European residential markets can be found in Stockholm with 1.75 %, followed by Zurich with 1.90 %.
- The most attractive yields of the 59 analysed markets can be found in the eastern Europe cities Riga (5.75 %) and Wroclaw (5,40 %).
- By the end of the year we mainly predict slightly decreasing yields in cities that are currently yielding above the European average.
- In the 19 countries a total residential transaction volume of EUR 22.7 billion was achieved in the first half of 2019. 30 % of this was generated in Germany alone, followed by Netherlands with a share of 21%.
- The taillights in the transaction ranking are mainly the eastern countries with a traditionally high ownership rate e.g. Lithuania, Latvia, Czech Republic and Estonia.
- In 10 countries the capital city is the engine of the national economy, generating minimum 25 % of the total country GDP. In this case, the most noticeable price difference between the capital and less powerful economic cities, is Paris. The rent is 128 % higher compared to the average of the other examined cities. The apartment purchase price is nearly three times higher (+188 %) in Paris.
- In the very polycentric market Germany, Berlin generates the highest GDP of all Top 7 markets (4.3 %), but average rental price is approx. 16 % and apartment purchase price is approx. 13 % cheaper compared to the rest of the Germany Top markets.
The majority of all countries have their industrial centre located in the capital city with high level of prosperity. Urbanisation and polarisation effects contributing heavily to further differences between the cities of each country. From the investor’s perspective the European residential market offers excellent diversification potential with a balanced risk / return profile, but let us also be aware that we will have to be prepared for regulatory market interventions by governments or authorities.