Currently, 31% of households in Europe live in rent, which is 5% more than ten years ago. And the growing trend will continue into the future, as confirmed by the latest analysis of CBRE. The main reasons include not only current socio-demographic trends, but also the lower availability of owner-occupied housing. According to Oxford Economics, house prices in Europe have risen by 3.2% a year since 2000. In contrast, real wages by only 0.5%. This means that while current incomes are only 9% higher than in 2000, house prices have meanwhile risen by 80%. Although rental housing is nothing new in the residential market, the way it is provided is fundamentally changing. While historically it has been offered mainly by the state or individual landlords, it is now increasingly being joined by large private and institutional investors.
“Rental housing products are becoming a significant investment asset, which has become even more attractive due to the pandemic and occupies an ever-increasing share of total investments in commercial real estate. It currently accounts for 17% of all investment in Europe, up from just 2% ten years ago. This is evidenced by the results for last year. While total investment in commercial real estate in Europe fell by 17% last year, investment in rental housing strengthened: by 27% year-on-year to € 47 billion, ”comments Jakub Štěpán, Head of Real Estate Valuation at CBRE, adding:“ In our January In a survey of investors in the EMEA region, a total of a quarter of respondents stated their current interest in rental housing products, right after office buildings. Therefore, we expect that by 2025, investments in the residential real estate sector, in which rental housing accounts for about 75% (the rest falls on accommodation for students on private campuses, etc.), will amount to almost 80 billion euros, which means 20% increase within five years. ”
Investor interest in European rental properties is rising. Even from countries outside our continent:
Recently, investments in European rental housing products from North American companies have significantly strengthened: from 7% in 2017 to 17% last year. The rental market in the USA is already very developed and rental housing products have been the most sought-after investment asset here for the last six years. Another interesting factor in the European rental market is the size of transactions. In 2020, the number of transactions exceeding 50 million euros increased significantly. While in 2017 these transactions accounted for 20% of the total volume, in 2020 already 34%.
No two European markets are the same, each country is at a different stage of development:
One of the most mature European markets, where there is also by far the highest level of investment in rental housing products, is neighboring Germany. However, due to the fact that the local commercial real estate market is also the largest in Europe, the share of investments in rental assets here in 2020 was “only” 20% of the total volume. This was less than in Denmark, the Czech Republic, Ireland or the Netherlands. However, it is in smaller markets that one large transaction can fundamentally affect the overall ratio of individual sectors. This is also the case in the Czech Republic and Denmark, where investments in rental housing products reached an unusually high 50% last year. In both cases, however, the share was significantly increased by the solo transaction worth more than 1 billion euros. When comparing European countries, it is therefore always necessary to take into account not only the size of individual markets, but also the structure of local rental housing providers, the availability of suitable products and the applicable regulations on the market. Germany, Austria, Switzerland, Denmark, the Netherlands, Sweden and Finland can be considered as developed countries in this respect. The Czech Republic, together with France, Poland, Norway, Spain and the United Kingdom, is one of the emerging markets with great potential for the future.
Gradual changes in the Czech residential market:
The Czech Republic has long been dominated by “in-house” housing, which accounts for as much as 70%. At the same time, in neighboring Western European countries such as Germany, Austria or Switzerland, it is up to 30% less. Rental housing in our country holds 20% and the remaining 10% is accounted for by cooperative flats. However, although owner-occupied housing is very popular in the Czech Republic and subconsciously underlines the social position of Czechs, it is possible to observe gradual changes in the market. The number of new development projects focusing on apartments for rent is growing (eg from developers AFI Europe, Daramis, Trigema, Sekyra Group or YIT). However, rental flats can also be created by transforming existing buildings – such as hotels or older apartment buildings, which are being reconstructed in the center of Prague, for example, by Zeitgeist Asset Management. Nevertheless, there are a limited number of suitable products on the market. Developers have long had no reason to consider changing their strategy in favor of rental housing, as most apartments will be sold before they are completed. But even that changes over time depending on the growing demand of large investors.
Investments in the rental housing sector in the Czech Republic will grow significantly in the coming years:
From the point of view of investors, the current interest in rental housing products is second only to offices. It was the sale of the residential portfolio owned by Round Hill Capital to Heimstaden Bostad for approximately 1.3 billion euros that became the largest Czech transaction last year. “Due to high investor demand, we expect rental income to reach 4% (for comparison – in Geneva the income is 1.9%, in Berlin 2.25%, in Vienna 3% and in Warsaw 5.25% ). And it is clear that the domestic market will respond to this. Already, some developers who used to build apartments for sale are now focusing on the construction of rental apartments. An example is AFI Europe, which already implements three rental housing projects in the metropolis with approximately 550 flats, ”says Jakub Štěpán, who, in addition to valuing rental housing projects, also deals with the valuation of all types of commercial and residential real estate.
Prague residential market: owner-occupied housing is becoming an unattainable dream:
The current volume of new construction in Prague is far from sufficient and lags far behind demand. CBRE experts estimate that around 20,000 flats are missing in the metropolis, and at the current rate of construction, this deficit will increase to about 100,000 flats by 2030. The lack of real estate in the market is pushing their prices up, despite the pandemic. The average price of new flats in the metropolis has been rising in recent years, until at the end of 2020 it climbed to approximately CZK 106,000 per square meter. To buy a new home with an area of 90 m2, the average Czech household needs to save 14 net annual salaries (for comparison: in the capitals of Belgium, Denmark or Estonia, these are net savings for 6 to 7 years). As a result, their own housing has become inaccessible to many people and they prefer to rent. The area of the most sought-after rental apartments ranges from 60 to 80 square meters. The demand consists mainly of singles or couples – whether they are friends who decide to live together or life partners. Most apartments on the Czech market are currently provided by private landlords and the average annual rent is around CZK 3,560 per square meter.
