Rental apartments are proving to be a sound investment in top global real estate markets, led by the United States but also strong in Germany, the latest analysis report suggests.
Rental growth in the US accelerated to its highest pace in the first quarter of 2016 and all major markets registered positive absorption, according to the global market perspective report from JLL.
It also says that institutional investment volumes continued to grow in Europe, with Germany achieving a record year for transaction volumes and the UK market expected to gather speed through 2016.
However, sales activity has continued to decline in Dubai, although falls in prices have been modest while in Asia, an accommodative policy stance, including a cut in interest rates, has provided support for high end sales volumes in China.
In the United States rents have accelerated nationally to 4.3per cent growth year on year, representing the fastest rate of increase this cycle and the largest advance since the second quarter of 2008.
The report points out that 13 markets have seen rental growth in excess of 5per cent year on year, with Western and Southeast regional markets seeing the greatest uplifts in rents. Yearly absorption on a national level continues to be unchanged at 1.6per cent, with all major markets demonstrating positive absorption.
The UK investment market is expected to accelerate in 2016. UK average price growth will finish 2015 up around 7per cent, ahead of expectations. London average price growth will be similar, although there is a large disparity between prime locations, which are now modestly falling, and outer London locations, which remain among the most robust growth areas in the UK.
The report points out that throughout 2015, policy changes adversely affected demand for high value property in London and that market will spend much of 2016 absorbing those changes before recovering towards the end of the year.
However, institutional investment deal volumes continue to grow in the UK. It explains that the Build to Rent programme is still the most common route to market and there are now assets that have been delivered under this emerging model that represent the first buildings in this new asset class.
JLL estimates that 2015 UK investment market volumes will be close to £2 billion, which remains behind European residential investment market peers, but they are forecast to increase as more schemes come to fruition in both London and increasingly in UK regional cities during 2016.
The residential investment market in Germany achieved record volumes in 2015, with more than €5 billion traded in the final quarter alone. Over the year as a whole, €25 billion and almost 360,000 apartments changed hands.
Some 20per cent of national sales, measured in terms of turnover, of residential properties and portfolios took place in the Greater Berlin area, followed at some distance behind by Hamburg at €880 million and Frankfurt at €780 million. The trend towards higher yielding residential products, particularly new build projects, micro-apartments and student residences, will be sustained over the coming year and a transaction volume similar to 2015 levels remains achievable.
The Swedish residential investment market continued to perform well in 2015, accounting for approximately one third of total real estate investment volumes at €4.1 billion, slightly below 2014’s total of €4.4 billion.
Nearly half of all activity came in the final quarter, with €1.7 billion worth of deals completed. Looking ahead to 2016 we anticipate continued high demand and healthy investment deal volumes in the residential sector.
There has been a continued decline in the volume of residential sales in Dubai as investors become more cautious, the report says. Data from the Dubai Land Department shows a significant 36per cent decline in the volume of activity compared to 2014 levels.
The increased maturity of the market is reflected in a much more modest fall in average sale prices, which decreased by 13per cent for apartments and 11per cent for villas during 2015. Rentals in Dubai have held up more strongly than sale prices, but average rents fell by around 3per cent over the past year, the first decline since 2010.
Meanwhile, policy restrictions remained in place in various markets across Asia. An accommodative credit policy stance, such as an interest rate cut, provided support for high end sales volumes in China’s Tier I markets.