Investors are looking for residential investments across Europe, says Catella


New research by Catella into the residential property markets in 61 cities and 19 countries in Europe has found that the current pandemic phase has had little effect on investor and transaction markets. 

Demand in the low interest rate environment remains very high, which is reflected by a further increase in average purchase prices and rents since the last reporting period in October 2020. This increases was accompanied once again by sustained yield compression within the residential asset class. Even rising long-term interest rates and occasional inflation concerns cannot stop investors' interest in flats it seems.

Prof Dr Thomas Beyerle, Head of Research Catella Group, says: "The demand for European residential real estate remains extremely high. The increasingly noticeable addition of residential to investment vehicles that were previously primarily office or retail-focused is also giving the market a special dynamic. These markets continue to offer potential to investors looking for diversification opportunities and a balanced risk/return portfolio on the European markets. Large agglomerations and capital cities are currently the most sought-after markets. On the other hand, however, these markets are significantly more volatile and heterogeneous than B-cities, especially in times of significantly changing economic signs, increasing political intervention in pricing and still difficult to assess structural effects of the post-pandemic phase."

According to the research, the average monthly residential rent (all construction years) of the 61 analysed cities is currently EUR15.46/sq m, which represents a decrease of 0.9 per cent compared to last year's analysis in the third quarter of 2020.

The cheapest residential rents are found in Liège (EUR9.30/sq m) in Belgium, followed by the Spanish city of Malaga with an average of EUR9.40/sq m and Brno (EUR9.50/sq m) in the Czech Republic.

The most expensive rental market is in Geneva, Switzerland, at EUR30.10/sq m. In Luxembourg, prices have risen by a total of 16 per cent to EUR29.00/sq m, and the sought-after cities of Paris and Dublin also continue to be high-priced residential locations in Europe.

The average purchase price for a flat in Europe (all years of construction) currently stands at EUR5,017/sq m, completing a strong increase of 4.15 per cent over the first half of the year. Prices range from EUR1,700/sq m in Riga to EUR15,430/sq m in London.

London is still the most expensive market for condominiums, but the average purchase price has fallen further by 8.4 per cent over the past six months. Geneva follows in second place with an average purchase price for flats of EUR13,760/sq m (+4.2 per cent).

The average European prime yield for apartment buildings has fallen to 3.19 per cent and is thus 0.47 per cent lower than six months ago.

The lowest yield of all European residential markets can be found in Stockholm (existing flats) at 1.30 per cent, followed by Zurich at 1.40 per cent.

The most attractive prime yields of the 61 markets analysed are in the Baltic cities of Riga and Vilnius at 5.35 per cent, followed by Wroclaw in Poland at 5.3 per cent.

Catella expects yields to continue to fall slightly in many European locations until the end of the year.