While the Euro 2020 is grabbing Europeans’ attention, investors remain enthusiastic concerning real estate. Demand for property remains high, particularly in the lower risk spectrum. Within the real estate universe, a strong contender for the investment cup emerged: the residential sector.
2021 might be the first year, where not offices but residential is responsible for the largest transaction volume.
Transaction volume by sector
CORESTATE Research using RCA data
Why is this the case? It’s two-fold, push and pull factors: Concerning the office segment, some investors are in a ‘lay low and wait and see’ position. There are uncertainties regarding the sector’s future stemming from work-from-home, automation of office jobs and other structural trends. So here demand remains focussed on income secure assets, meaning long leases to strong covenants. This market segment is limited in size though, creating investment bottle necks and rising prices.
Residential on the other hand is broadly seen as a highly income secure asset class, which has proven to be relatively resilient in a pandemic scenario, highlighting its systemic relevance. As a result, YTD the share of the European transaction volume spent on residential has gone up to 25%, which is 12 percentage points above the 10-year average. Driven by the strength of e-commerce, logistics is following suit, gaining 10 ppts and making up a share of 20%. Offices’ share dropped below 30% down 7 ppts from 2020 and 12 ppts from 2019.
In Germany, this is even more pronounced. The residential sector made up 36% of the entire investment volume, 13 ppts above 2020’s volume. Remarkably, now residential is the dominant commercial property sector as offices’ share has fallen to 33.
It is likely that the strength of the residential market will persist in the short-term but also in a longer-term perspective. It is also likely that investor demand will broaden to more specialised market segments like co-living, micro living, senior housing and student housing. Because these concepts combine the security of the residential sector with the return profile of commercial properties.
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This presentation has been compiled by Corestate Capital Investors (Europe) GmbH, a company of the CORESTATE Capital Group, 02.07.2021.
