Berlin/Munich, 9th November 2023 - The growing divergence between rising residential rents on huge unmet demand for homes and falling property values is continuing to widen in Europe’s €1.6 trillion* housing markets. The gap between rent and values shows no signs of closing, as the supply of new homes stutters and investors and owner-occupiers retreat in the face of steep financing rates and material costs, Catella’s Residential Market Overview Q3 2023 research report concludes.
Professor Dr Thomas Beyerle, Head of Research at the Catella Group, said: “Rising yields are making residential investment in European cities appear more attractive again, but a recovery in the construction of new homes is still being held back by high interest rates, and construction costs and the expense of complying with tougher sustainability regulations. The strong and unsatisfied demand for residential property is nowhere near being met by supply, which will lead to further increases in rents. In these market conditions, the securing of affordable homes for large swaths of the population is getting increasingly out of reach and the housing crisis is topping political agendas across Europe.“
Residential rents rose by an average of about 5.0% to €18.16 m2 per month in Q3 2023, compared with the first quarter of this year, across all 63 cities in 20 European countries covered by the Catella research, with the exception of Estonia. In Ireland, Lithuania and Poland, rents have risen over 10% this year.
London, with an average rent of €34.00/m²per month, remains the most expensive European city, ahead of Geneva at €32.00/m², and Luxembourg and Paris, equally at €30.50/m².
Prime yields for apartment blocks, which move in the opposite direction to prices, continue to rise across Europe and stood at 4.35 per cent in the third quarter of 2023, 38 basis points higher than in the first quarter this year.
Dr Lars Vandrei, Senior Research Manager at CRIM, concluded: "We believe we are roughly in the middle of the downward phase in valuations, as the repricing of residential property in European cities continues, and Catella expects that prime yields in most markets will rise further. The affordability of residential real estate across Europe for renters and buyers has deteriorated despite rising wages and falling prices, as the cost of property financing has increased significantly following the European Central Bank’s succession of interest rate hikes.“
Other highlights of Catella’s Residential Market Overview Q3 2023
- The lowest average rents in the European markets covered are in Liège, Belgium, at €10.00/m² per month, followed by Graz in Austria with an average of €10.50/m².
- Purchase prices for apartments developed very differently between Q3 2022 and the third quarter of 2023, both at national and city levels. The range extends from just under -10.0% in Germany to an increase of 9.0% in Lithuania. The EU average shows a slight increase of 0.6 per cent.
- The average purchase price for an apartment in the cities analysed (all years of construction) between Q1-Q3 2023 was €5,268/m². The range extends from €1,730/m² in Lahti (Finland) to €15,650/m² in Geneva.
- The lowest yield of all European residential markets was recorded in Stockholm at 1.90% in Q3 2023 (+15 bps compared with the first quarter of this year), followed by Zurich and Geneva at 2.20% each (Zurich: +20 bps and Geneva: +10 bps over the same period).
- The highest prime yields are offered by Vilnius at 5.85% (+35 bps over Q1 2023) and Riga at 5.60% (+20 bps over Q1 2023).
* Source Mordor Intelligence
You can download the full study here.
About Catella Residential Investment Management GmbH (CRIM)
Catella launched its first European residential property fund in 2007. The team also launched the first specialised pan-European student housing fund in 2013. CRIM is a subsidiary of the Stockholm-based Catella AB Group and its residential property business includes portfolio management advice, acquisitions and disposals as well as asset management. CRIM manages and advises several funds and mandates with assets under management of over €7bn in ten European countries.
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