Buyers ignore inflation concerns, rising long term interest rates in Europe

Demand for residential property in Europe remains very high despite rising long-term interest rates and sporadic inflation concerns, says Catella Research.

In a first quarter report looking at 61 cities and 19 countries in the region, Catella highlights that the increasing "addition of residential" in investment vehicles that were previously primarily office- or retail-focused is also giving the market a special dynamic.

“These markets continue to offer potential to investors looking for diversification opportunities and a balanced risk/return portfolio on the European markets. Large agglomerations and capital cities are currently the most sought-after markets,” says

Thomas Beyerle, Head of Research Catella Group.

“On the other hand, however, these markets are significantly more volatile and heterogeneous than B-cities, especially in times of significantly changing economic signs, increasing political intervention in pricing and still difficult to assess structural effects of the post-pandemic phase," he adds.

Key findings from the analysis for Europe:

  • The average monthly residential rent (all construction years) of the 61 cities analysed is currently 15.46 euros/sqm, which represents a decrease of 0.9% compared to last year's analysis in the third quarter of 2020.

  • The cheapest residential rents are found in Liège (9.30 euros/sqm) in Belgium, followed by the Spanish city of Malaga with an average of 9.40 euros/sqm and Brno (9.50 euros/sqm) in the Czech Republic.

  • The most expensive rental market is in Geneva, Switzerland, at 30.10 euros/sqm. In Luxembourg, prices have risen by a total of 16% to 29 euros/sqm, and the sought-after cities of Paris and Dublin also continue to be high-priced residential locations in Europe.

  • The average purchase price for a flat in Europe (all years of construction) currently stands at 5,017 euros/sqm, completing a strong increase of 4.15% over the first half of the year. Prices range from 1,700 euros/sqm in Riga to 15,430 euros/sqm in London.

  • London is still the most expensive market for condominiums, but the average purchase price has fallen further by 8.4% over the past six months. Geneva follows in second place with an average purchase price for flats of 13,760 euros/sqm (+4.2%).

  • The average European prime yield for apartment buildings has fallen to 3.19% and is thus 0.47% lower than six months ago.

  • The lowest yield of all European residential markets can be found in Stockholm (existing flats) at 1.30%, followed by Zurich at 1.40%.

  • The most attractive prime yields of the 61 markets analysed are in the Baltic cities of Riga and Vilnius at 5.35%, followed by Wroclaw in Poland at 5.3%.

Catella is a leading specialist in property investments and fund management, with operations in 13 countries. The group has assets under management amounted to approximately EUR 11,5 billion at the end of the first quarter of 2021. Catella is listed on Nasdaq Stockholm in the Mid Cap segment.