The real estate company JLL announces, that 56 billion euros flowed into European residential investments in 2018. This result exceeded all expectations by far. Overall, the transaction volume has increased by 40 percent. The main reason for this was the strong growth in mergers, transactions and investments from abroad.
Investors focused primarily on the top 20 metropolitan regions in Europe. Around 20.4 billion euros were invested in these particularly strong locations. This corresponds to around 35 percent of the invested capital in total. Out of the top 20 cities, Berlin is leading the ranking with a transaction volume of 3.11 billion euros. Far behind with 2.43 billion euros, Copenhagen is in second place.
Germany is the most popular investment location
In addition to Berlin, there are also Frankfurt am Main (5th place), Hamburg (8th place), Dusseldorf (12th place) and Munich (13th place) among the twenty best ranking cities in Europe. Although Great Britain was able to place six cities in the top 20, London ahead, the recorded transaction volume is by far lower than Germany´s. One third of the capital invested in European residential real estate was placed in the German market (+ 38% to € 18.6 billion). Germany’s transaction volume thus has a considerable distance to the two next ranking locations, Great Britain (+150% to 6.7 billion euros) and the Netherlands (+35% to 5.6 billion euros).
“The fact that a total of five German markets are among the most important destinations of global capital in residential real estate results on the one hand from the size of the German rental housing market, but on the other hand also reflects the federal structure of Germany with several interesting cities and growth areas. One in eight euros invested in Europe is thus attributable to one of the five largest German markets, “states JLL’s analysis. Spain and France placed two locations each, Denmark, Austria, Ireland and the Netherlands placed one location among the top 20 European cities.
Investments from abroad are increasing
In particular, the strong interest of foreign investors has contributed to the high transaction volume for European residential investments. The corresponding JLL report states: “Also in the next two to three years, investors will rely on assets in the major European centres. Demographic, social and economic factors, e.g. declining household sizes, urbanisation and thus a high housing demand coupled with a continuing shortage of housing supply form the basis for long-term successful investments. “19 billion euros, about one third of the transaction volume, are funds from abroad. For some countries, cross-border investments account for a great part of the transaction volume. Poland, for example, drew its total transaction volume for residential investments in 2018 from cross-border investments, Ireland (70%) and Finland (60%) also drew high levels of foreign capital. In Germany, on the other hand, investors from abroad account for just under a quarter of the total volume. According to JLL, the trend towards residential real estate will not change in the near future. “The sector’s performance as a defensive investment will attract even more attention from investors looking for stable cash flow and diversification benefits, given the technology-driven disruptive trends in, for example, the retail and office sectors,” the company said.
Trends in the investment market
In addition, residential investments offer a low yield correlation and offers many attractive opportunities for project development. “Investors have also become more active in the wider living spectrum. Long-term demographic data encourage the development of these sub-sectors. They enable investors to capture a wide variety of age profiles. Student residences, nursing care homes or co-living solutions offer institutional investors a broad range of investment opportunities with different risk-return profiles. Not only a higher current yield plays a role, but also a lower regulation and thus a higher potential for rental growth in the short term. This is partly the result of shorter rental periods, often less than a year. Demand for these products will increase significantly in the short term, “concludes JLL.
JLL is one of the world leaders in real estate services, consulting and investment management. The company operates in more than 80 countries and employs approximately 92,000 people. For the report cited here, JLL has recorded institutional investments in excess of 5 million euros, including mergers and acquisitions and project developments, to collect the transaction volume data.
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