Research Briefing | Feb 7, 2024

Europe: Residential opportunities have a northern bias

The outlook for European residential real estate is improving. The prospect of lower interest rates means house price corrections are probably coming to an end, while still-stretched affordability will support rental demand.

What you will learn:

  • Some markets such as Sweden, the UK, and the Netherlands offer more promising investment opportunities than others, in our view. On the demand side, we estimate these three countries will experience the biggest population increases over the next decade. Conversely, we forecast declines in Germany and Italy’s populations, despite a positive impulse from inward migration.
  • Residential property prices look to have bottomed out in most European markets and prospective rate cuts should support a recovery in values. Modest price falls over the last year have done little to offset a deterioration in housing affordability and the impetus this gives to rental demand.
  • Supply constraints should also support residential values, though in some markets more than others. This looks most true of the UK, which has both the smallest number of dwellings relative to population among the big European markets and, uniquely, saw no increase in the population-adjusted dwelling stock during the 2010s.
  • Prior to the recent bout of high inflation, growth in European housing rental values tended to keep pace with, or exceed, inflation. The Netherlands and Sweden delivered the strongest real terms rises among the major markets. Population trends in those countries suggest that outperformance may resume now inflation is falling back to more normal levels.
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