_A coming of age for global multihousing
The institutional multihousing sector varies across the world from the mature North American and German markets to the emerging locations, such as the UK and Australia, which are currently dominated by small individual landlords.
In the US, capital is spread across the leading cities with the South Eastern states accounting for the largest share. Yields remain robust at 5.4% as pricing remains stable and the availability of good sales stock limited. Foreign capital continues to target the sector, and in particular the secondary markets of Atlanta, Charlotte and Phoenix. Indeed, in the past 12 months, more than three-quarters of international investment has been into the US secondary and tertiary market.
"In the emerging markets, such as Australia and the UK, interest and activity in the multihousing sector is growing rapidly. Institutional investors are now actively looking at the sector"
Across the US, over 370,000 multihousing units are expected to be delivered into the market in 2017. The majority of the new supply is in the top 15 markets where 56% of multihousing was delivered in 2016. Employment growth nationally has accelerated, highlighting positivity in the economy and a solid demand backdrop.
The German residential market is stable and is supported by structural trends such as the low cost of renting in cities such as Berlin compared to other European cities. Markets to watch include Munich which has very low vacancy rates, averaging 0.4%, which is expected to remain static as a result of significantly low supply in relation to the predicted growth in the number of households. We continue to monitor solid demand from institutional investors across the world.
In the emerging markets, such as Australia and the UK, interest and activity in the multihousing sector is growing rapidly. Following the expansion of purpose-built student accommodation as an established investment asset class, institutional investors are now actively looking at the multihousing sector.
In Australia, the current economic climate and housing market environment suggests that the proportion of privately rented households will only increase. Knight Frank Research projections indicate that NSW, Victoria and Queensland will have approximately 31%, 30% and 33% of households in the private rented sector by 2019/20. Key Australian cities for investors are those with employment growth and low vacancy rates such as Perth, Brisbane and Melbourne.
In the UK, the multihousing sector has grown significantly in recent years and is currently estimated to be worth around £25 billion. This is projected to reach £70 billion by 2022. This level of growth is sustained by the proportion of households estimated to be living in private rental accommodation which is expected to reach 24% over the same time period.
Purpose built PRS accommodation is spread across the UK: focused on city centre locations in the regions and well-connected transport hubs in London. The sector has mainly been driven by young professionals looking for high quality, well connected, flexible accommodation. The most active investors seeking residential income in the UK are diverse geographically and in terms of the source of capital. We are monitoring strong demand from UK, North American and Asian markets, with interest also being shown by Australian Superannuation funds and by sovereign funds from the Middle East.
Importantly, the UK Government has shown support for multihousing to help solve the national issue of housing supply; especially in London. Recent policy changes such as additional stamp duty on buy-to-let investments and the curbing of mortgage interest reliefs have opened the opportunity for large scale investors and operators.
Interestingly, across the globe the highest growth in demand for rental accommodation was observed in Middle Eastern countries, namely Qatar, where over the last five years the number of households in the rental sector has increased by 35%. Alternatively the most significant reduction in rental households was observed in Eastern European countries, for example Hungary, where the number of households has shrunk by 28% over the last five years.
The Global Capital Markets team works on a daily basis with sector experts around the world, giving investors access to up-to-date intelligence and transaction opportunities in key global investment markets.