Multifamily is a core target in an increasing number of investment portfolios

Multifamily investment outlook remains positive. Savills European Research estimate that at least €10.3 billion will be invested in the multifamily sector in the 2nd quarter, with half of the countries expected to reach higher volumes than in the 1st quarter of 2020. Strict lockdown measures across Europe have slowed investment activity, but so far, the impact on pricing has been minimal, while rental growth expectations are subdued. Households ability to meet their rental obligations will be tested over the next few months as government support measures start phasing out.

Housing is a basic need and therefore demand for rental apartments remains stable or even rises in periods of economic uncertainty. Urbanization, smaller households, unaffordable house prices and rising occupier demand for flexibility and services support investor appetite for multifamily. The main considerations for multifamily investors following the health crisis are affordability and real rental growth prospects. Investors are adjusting their expectations, focusing on medium income product, which can offer stable and sustainable income streams. Savills expect prime achievable yields to remain broadly unchanged until the end of the year. Competition remains high as investor intentions indicate that more capital will be allocated to the residential sector.

Multifamily cannot be considered anymore an alternative investment. It has become an asset class for core strategies, particularly in markets such as Germany and the Nordics, where volumes are comparable or even higher than offices. In Finland, residential investments have traditionally been in the portfolio of institutional investors, but during the last few years, cross border investments have grown rapidly. According to KTI’s assessment, foreign investors owned about 17,000 Finnish rental apartments at the end of 2019.

The shift of the population towards renting was mainly triggered by the rising house prices. Recently, rental values have also risen rapidly, reaching a level that the average household cannot afford to pay. Savills estimate that rent regulations will intensify in many European countries in the future due to the high need for affordable housing in urban cities. In Finland, straightforward rental practices, with no restrictions on the amount of rent or rental period in non-subsidized housing, are appreciated by multifamily investors. Also in non-subsidized rental housing, lower-income households and students are entitled to the general housing allowance provided by Kela (The Social Insurance Institution), so the risks for investors are well mitigated.

Covid-19 has slowed down construction activity, which will intensify the shortage of housing supply in the short term. Rising unemployment risks and tighter lending conditions can lead to lower demand for home ownership, which will be reflected to a gradual shift of developer focus to BTR (Built-to-rent). Savills expect Covid-19 to accelerate changes in the housing market and affect people’s housing choices and preferences. In the short term, people may prefer less densely populated areas with good transport links, more private space and/or space for working at home, and some outdoor space. Quality and price segmentation are needed as people have different needs and preferences depending on their personal status, income level, age, and profession.

Please, open the link to see more in detail information: Spotlight European Multifamily, June 2020/Savills