Rising yields boost attractiveness of European resi market

Prime yields for apartment blocks, which move in the opposite direction to prices, continue to rise across Europe and stood at 4.35% in Q3 2023, 38 basis points higher than in the first quarter this year, according to research by Catella Group.

At the same time, the growing divergence between rising residential rents on huge unmet demand  for homes and falling property values is continuing to widen in Europe’s €1.6 trillion housing markets.

“Rising yields are making residential investment in European cities appear more attractive again, but a recovery in the construction of new homes is still being held back by high interest rates, and construction costs and the expense of complying with tougher sustainability regulations. The strong and unsatisfied demand for residential property is nowhere near being met by supply,  which will lead to further increases in rents. In these market conditions, the securing of affordable homes for large swaths of the population is getting increasingly out of reach and the housing crisis is topping political agendas across Europe,” said Professor Dr Thomas Beyerle, Head of Research at the Catella Group.

Catella’s research shows that monthly residential rents rose by an average of about 5.0% to €18.16 per sqm in Q3 2023,  compared with the first quarter of this year, across all 63 cities in 20 European countries.

Dr Lars Vandrei, Senior Research Manager at CRIM, added that we are roughly in the middle of the downward phase in valuations, as the repricing of residential  property in European cities continues. This means that prime yields in most markets will rise further.

Furthermore, the lowest monthly average rents in the European markets covered are in Liège, Belgium, at €10.00 per sqm, followed by Graz in Austria with an average of €10.50 per sqm. At the same time, the average purchase price for an apartment in the cities analysed (all  years of construction) between Q1-Q3 2023 was €5,268 per sqm. The range  extends from €1,730 per sqm in Lahti (Finland) to €15,650 per sqm in Geneva.