Record levels of investment poured into European residential assets last year, with spending nearly equal to that of office investment, Knight Frank reports. Just shy of €100 billion of assets were traded in the European residential investment sector in 2021, up 60% on 2020, analysis of data from RCA shows.
Total investment in 2021 was 45% higher than the previous record year in 2019. The sharp uptick was supported by a handful of large portfolio deals which completed last year including Vonovia’s acquisition of Deutsche Wohnen for close to €28 billion and Heimstaden’s acquisition of the Akelius residential portfolio for €9 billion. Overall, deal volumes were 40% higher than in 2020 and 34% up on 2019.
In total, investment into residential assets (encompassing student housing, multifamily, single-family rental, co-living, and seniors housing), accounted for 29% of all real estate investment by value across Europe, on a par with office investment.
Ten years ago, the residential sector accounted for just 10% of all European acquisition activity.
Further investment expected
Investment volumes have been underpinned by the defensive characteristics of the sector, which have been on display during the last 18 months, as well as investors’ growing comfort level with exposure to more operational real estate.
With inflation on the rise and bond yields at historic lows, the defensive benefits of investing in beds are set to continue as investors look to rental income as a hedge against inflation. Reflecting this, more than half the respondents to our recent European Residential Investment Survey said they believe the residential investment sector will outperform all other real estate sectors this year.
Over 90% of respondents to the survey planned to “significantly increase” their allocation to residential over the coming year, including by spreading their exposure across different age and lifestyle groups.
New markets
Analysis of investment by country shows that Germany was the largest single market for European residential investment, with 2021 volumes reaching €53 billion. Second to Germany is the UK, with over €12 billion invested, an increase of 6.6% on 2020 levels.
However, in relative terms, the most significant increase in investment has been in the Nordics, with Sweden, Denmark, and Finland doubling 2020 levels to a combined 2021 total of €19 billion.
Cross-border capital remains a significant driver accounting for 34% of transactions in 2021. However, this is distorted significantly by Vonovia’s acquisition of Deutsche Wohnen. If we remove this deal from the analysis, the cross-border investment extends to 47%.
As governments continue to gradually lift Covid-19-related restrictions and cross-border mobility improves, Knight Frank expecta pent-up investor demand will translate into a further rise in transaction activity in 2022 and beyond.
Indeed, through its Active Capital research, Knight Frank expects 2022 will be a record year for global cross-border real estate investment, with the US, the UK, Germany, France, and the Netherlands, forecast to be the most popular destinations for that capital.
