Savills and GEM: Multifamily largest sector – Diverse housing demand and residential investment opportunities

In 2021, multifamily investment exceeded slightly office investment for the first time on record. Covid is likely to leave a lasting legacy on the way we work, live, and spend our leisure time. Out of the city migration is a trend in many European metropolitans. According to Savills European Research post pandemic trends are likely to create a more diverse demand for housing. A challenge for residential investors is the increasing operational intensity of the assets. Overall, this points to greater operational complexity and required expertise.

Multifamily investment (12 countries) exceeded office investment by a few million Euros in 2021 driven by large-scale mergers and acquisitions in Europe. Each sector accounted for 28% of total investment volume. The share of multifamily was as high as 54% of the total in Denmark, 46% in Germany, 39% in Ireland, 35% in Sweden and 32% in Finland. In all these markets the sector was larger than offices in 2021. European prime net multifamily yields moved in further in Q4 2021. Multifamily remains one of the top asset types of choice in Europe.

During the pandemic the share of people working from home has more than doubled from about 5% to 12.3%, according to Eurostat data. Finland now boasts the greatest proportion of remote employees in the EU, with a quarter of its employed inhabitants working from home. The return to the office will be gradual and it is widely accepted that most employees will prefer to work once or twice a week from home.

Flexible working arrangements have allowed people to look for larger, more affordable homes with easier access to open spaces and nature. Hours previously lost in commuting have been used more productively and people have appreciated the flexibility to enjoy a better work-life balance. The design of residential space needs to adapt to the rise of ‘working from home’. Citizens spend more time at home and focus on wellness and convenience.

There is evidence of negative population growth in several European cities such as London, Paris, Stockholm, and the German cities. When combined with a fall in international inward migration it is likely that the London’s population fell for the first time in over 30 years. Outward migration from the capital city has been noticed also in the Nordics. Stockholm municipality lost 8,495 inhabitants during the full year 2020. In 2021, domestic net migration was negative in Helsinki (-3,506), in Espoo (-441) and in Vantaa (-1,660). Although the impact of these shifts is small, city leaders are trying to enhance the attractiveness of their cities and improve the quality of life of their citizens.

There is increasing pressure to modernize the existing housing stock by ESG requirements and a stricter regulatory environment. More than 85% of the EU building stock was built prior to 2001 and most of these structures will be in use in 2050, when Europe is aiming to achieve climate neutrality. Renovation is vital for achieving energy efficiency.

More in detail information: SAVILLS Spotlight European Multifamily Investment, City migration trends – February 2022

Irma Jokinen, researcher