Investment allocations outside the traditional commercial sectors (office, retail, industrial) have been increasing by 25 percent year-on-year on average over the past 15 years, according to a report by real estate advisor Savills. The report also highlights the rise in European residential investment specifically.
Over €40.7 billion ($46.2 billion) was invested in residential accommodation across Europe in 2015 – a 57 percent increase on volumes in 2014, according to the research. The multi-family and apartment sector in prime cities is particularly attractive to institutional capital.
According to the report, the rapid increase in demand for the sector is due to population growth and urbanisation in key cities across the continent. The trend of urbanism is expected to concentrate 80 percent of Europe’s population in urban areas by 2050. This puts pressure on prime cities that are most exposed to population growth.
Nevertheless, there are significant variations in dynamics between markets. For example, in the UK, 60 percent of the overall value of deals was captured by London in 2015 while in Germany, the strongest increase of volume was in second-tier cities.
The report also states that alternative investments in niches such as student housing, healthcare and mixed-use are also increasing. The key factors here are the trends of an ageing population and the growing numbers of international students and tourists in Europe.
The UK accounted for 47 percent of transaction volume in the seven countries in Europe covered by the report. This was about €10 billion in total.
The report forecasts that there will be continued growth in the alternative sector. It provides stable and long-term income for investors with long-term strategies. However, such markets lack transparency and have lower liquidity as transaction volumes are smaller and the market is not yet institutionalised.