Rents and sale prices rising in European housing markets, yields falling CZ (Copy)

Housing markets in major cities and regional centres almost everywhere in Europe are enjoying impressive growth rates with rents and sale prices rising, while yields are falling.

In the first half of 2019, in 19 countries a total transaction volume of EUR22.7 billion was achieved. Germany accounted for 30 per cent of this, followed by the Netherlands with 21 per cent. These figures are from a new survey of the residential property markets in 59 European cities by Catella Research.

Catella Research has carried out a new analysis of the European office market in 18 countries, including, for the first time Italy, Portugal and Ireland. At the start of the third quarter of 2019, the European real estate investment market is contending with a weakening economic mood, political uncertainty, high prices and shortages of property, particularly in the core segment. The analysis of Catella’s most recent investor survey in July showed that, in the short term, many investors only intend to reduce their investment in office properties by around 4 per cent. Nevertheless, investments in office property are still the most sought-after asset class in Europe. The transaction volume in the countries analysed by Catella totalled EUR43.1 billion in the first half of 2019.

Dr Thomas Beyerle (pictured), Head of Research, Catella, says: “Such a pronounced discrepancy between rents and sale prices has not been seen in Europe since the late 1970s. Urbanisation, densification and increasing land prices are closely associated. At the same time, trends that are putting pressure on the responsible authorities are evident. Affordable housing must be built, to ensure social balance and the ‘city of short distances’, in response to the dramatically changing mobility requirements.”

According to the research, the average monthly apartment rent (across all ages of building) in the 59 cities surveyed is currently EUR15.13 per sq m, while the lowest rents (EUR8.50/sq m) are in Riga, and the highest in Geneva (EUR28.50/sq m).

The average sale price of a condominium apartment (all ages of building) in Europe is currently EUR4,594 per sq m. The prices range from EUR1,450 in Riga to EUR16,420 in London.

The average prime yield on European apartment buildings is currently 3.72 per cent: even lower than that on office properties. The average prime yield is 25 basis points lower than in Catella's previous analysis, in the first quarter of 2018.

The lowest yields in the European housing markets are in Stockholm (1.75 per cent) and Zurich (1.90 per cent), with the highest in the eastern European cities of Riga (5.75 per cent) and Wroclaw (5.40 per cent).

Catella also investigated the strength of the economic influence on housing prices. In 15 countries, the capital city generates the highest GDP and, not surprisingly, its housing is therefore the most expensive. The exceptions are Austria, Germany, Spain and Switzerland, where the highest residential prices in the country are not found in the capital. 

From the investor's perspective, the European housing market offers excellent diversification potential, with a balanced risk/return profile. However, being prepared for regulatory market intervention by governments or authorities is essential. Catella anticipates that yields in the cities that are currently above the European average will fall slightly up to the end of the year.