With yields averaging 3.35%, the asset category ‘multi-family housing’ is moving out of the ‘alternative’ sector and becoming ‘core’, according to property adviser Savills. Germany, with its disproportionately large rental market, will be the principal focus of investors, but other markets are seeing their rental housing sector growing fast, often where private ownership had traditionally held sway.

In a recent study analysing the 12 main European markets, Savills found that the main growth drivers for rental housing are unlikely to be unduly affected by the coronavirus pandemic. Those key drivers are: increasing urbanisation, smaller households, often barely affordable prices for home purchases, and rising demand for flexibility and services. 

European transaction volumes in the first half of 2020 were above €22bn and in line with last year. As a result, demand among investors will tend to rise and ensure largely stable returns. Germany, by far the largest market, is likely to remain strongly in focus.

According to Savills head of European investment and CEO Germany, Marcus Lemli, “Multi-family buildings are increasingly becoming the focus of investors throughout Europe as an investment product due to their comparatively high earnings stability. In many European countries, product availability is increasing and multi-family properties are increasingly establishing themselves as a permanent fixture in the investment market.”

Savills figures show that about €8bn was invested in German apartment buildings in Q1 2020, representing a 70% share for the quarter of all European transactions. Second, by a wide margin, came the UK with a share of 8%, followed by Sweden with 6%.

The asset category ‘multi-family housing’ provides an average initial yield in the countries surveyed at 3.35%, with Savills expecting this to remain largely unchanged at least through end-2020.