Demand for rented apartments has been rising across Europe over the past few years, from the established ‘renter’ markets of Northern Europe (Germany, the Nordics) to the traditionally owner-occupier markets of the South (Spain, Italy).

Investor and developer interest has also largely been following this trend with multifamily as a sub-sector now accounting for about one fifth of real estate investment in Europe, according to our Q1 data.

Nevertheless, in light of recent developments in the form of the Covid-19 pandemic, construction activity around multifamily has slowed considerably, therefore intensifying the shortage of housing supply in the short term. This undoubtedly will have an effect on the residential demand and supply imbalance that characterises large European urban centres.

Underpinned by strong fundamentals, the multifamily sector has always been a resilient one for a number of reasons. Primarily, it is a sector which most closely mirrors social trends such as where people live and the demographic topography within a given city or neighbourhood. Its reliance on economic movements are less so than offices, retail and logistics and, as a result, multifamily will be less impacted by major shocks to the financial landscape.

As such, despite the uncertain long-term implications of the health crisis, it should not affect the basics of demand and supply. Demand for multifamily is expected to remain solid offering long-term, inflation-hedged income streams to investors, especially institutional ones (pension funds, REITs, and so on) who are seeking these quality income streams.

The main considerations for multifamily investors following the health crisis and the economic downturn are expected to be around affordability and real rental growth prospects. The issue of affordable housing has been a key theme in the housing crisis in Europe, even before Covid-19. Although investors are keen to get further exposure in the sector, the viability of investments comes under scrutiny when land values and construction costs are high while rental levels need to be low.

The collaboration between the public and private sectors is pivotal to the supply of the much needed stock. Working in partnership through innovative financing and funding, planning and land availability, sharing benefits and risks, will create more investor confidence and will attract more investment in the affordable market segment.

In terms of demand, although apartments in multifamily blocks in central areas may be less desirable in the short term, following the pandemic people might look to move in less densely populated areas which could lead to some new investment and development multifamily opportunities in well-connected peripheral locations. Nevertheless, amenities, a mix of uses and connectivity are expected to remain important.

Overall we expect Covid-19 to accelerate changes in the housing market and create further diversification of assets based on local demographics and economics as people have different needs and preferences depending on their personal status, income level, age and profession.

Further information

Read more: Covid-19 Resource Hub