Emerging Trends in Real Estate: Europe 2020
Consisting out of 26 different countries, Europe is still considered the most popular Continent for Business, Investment, and Real Estate. Read our Short on upcoming Trends in the Area between London and Bucharest, Rome, and Stockholm for the second part of 2020.
At the beginning of 2020, investors thought positively of the new year. The global economic outlook was mixed but investors were confident in property’s secure and stable returns – although the year won’t be without its challenge. Nobody could know what would follow only a few weeks later.
The Covid-19 pandemic, the global quarantine measures, and the mourning for the many thousand deceased have put the world on halt for a moment. As a global society we will move on with our lives, but we already know that they won’t be the same as before the crisis.
While many have to cope with the loss of a loved one, companies worldwide are already making ways for another era, trying to ensure that such a disaster will not strike on us all again.
Not only doctors and health providers are in demand, but also entertainment, logistics, and last but not least the Real Estate Business. As a home is simply the core of living, the business is mandated to keep people safe from the future. This includes workplace culture at first, but only private living, entertainment, and everything else. And the process is far from over yet.
Apart from the Pandemic, the biggest challenges for the European Economy and Real Estate lies in unsolved political issues. The long-term-project of Brexit is still completely unclear.
Because of this uncertainty, the UK economy might have lost approximately £70 billion in real growth since 2017, according to analysts. Especially the topics of free trade and the eventual secession of Scotland and/or Northern Ireland, to (re-)join the European Union remain unsolved, creating even more problems in the process.
Further political challenges are internal disputes between various factions, for example
- Countries in favor of further integration, mostly in the West, against countries against further integration, mostly in the East
- Countries in favor of restricted government spending, mostly in the North, against countries in favor of more government spending, mostly in the South.
So please feel free to read our overview of what the huge European Market has to offer and how you can make some profit from its Real Estate.
There is no country called Europe – Mind the differences
Europe may – mostly – be united by the European Union, which at least up to some parts harmonizes legal structure and creates a common market, also for real estate and assets.
But keep in mind that it is very diverse, varying enormously not the only language- and culture-wise, but in economics as well. So as an investor in real estate keep in mind that there are cities always worth investing into – such as, for example, Amsterdam, Berlin, Copenhagen, Munich, Manchester, and Stockholm – and others, especially in the south and east of the continent, which are a bit more difficult. Not to mention that there are some global cities, such as London or Paris, which’s price level is already way out of proportion to local income and maybe better left alone as a playground for the super-rich than as a target for actual investment.
If you think conservative, try to opt-in for one of the countries in Northern or Western Europe.
Germany is the unquestioned powerhouse of the European Union, with a growing population and an export-orientated economy still going strong overall despite headwind from an overly vague situation.
The trends relevant to real Estate in Europe can be divided into 4 groups:
1. Changing Society and Demographics
- Smaller households:
The average household sizes in the European Union are small and becoming even smaller.It has reached an average of 2,3 people for the whole EU in 2018, declining from 2,4 or 2,5 a couple of years ago. While in some countries like Poland and Croatia the average is still around 2,7 or 2,8 people, in Germany or The Netherlands the average has already reached 2,0 people per household. This means that a majority of homes are already inhabited by couples without kids, single parents (mostly moms) with one child, or people simply sharing their home with friends or strangers to save money.
As an investor, you will understand that most of these people have no need for huge apartments or even houses, but mostly 2-3 rooms will be enough to fulfill their needs. On the other hand, as many of these inhabitants have double income, they can allow themselves a more luxurious home than those with kids and/or only one income.
- Aging Society: Need for barrier-free living
With the smaller households comes a smaller percentage of children, resulting in a higher percentage of elderly in the population. In the year 2020, more than 20 percent of people in the European Union were over 65; with Italy, Finland, and Portugal having the highest percentage. Given the relatively high pension, many of the elderly receive they make up an interesting target group for real estate investors. For example, you could add escalators in every building, make the stairs easier accessible, and have the bathroom interior remodeled to fit for the needs of the elderly.
- Rural Exodus and Migration towards (Western) Europe
Europe both as a continent and as a Political Union is extremely diverse.So there are both countries where people are migrating to, as mainly the Nordic Countries, France, Great Britain, and Germany. On the other hand, some of the more southern and eastern countries recently suffered a loss in demographics, mainly from the younger generation in search of a better economical situation elsewhere. On top of that, there are migrants from outside of Europe, who are as well hoping for a better future there than at home. More than 20 Million people lived inside the EU 27 on the 01.01.19 who were no Citizens of an EU country.
For the same reason, people from rural areas are drawn to the cities for better work opportunities and general quality of living, which often lacks in many countries outside of the large towns and cities.
For an investor this means that it’s worth analyzing the routes that both internal and external migrants choose, to find a spot that is worth every single cent of your money.
As an example, the City of Berlin lost quite a few of its inhabitants from former East Germany after reunification in 1991, leaving a lot of housing unused. While the low costs of living only attracted students and artists at first, the demand for housing in and around Berlin has skyrocketed in the last 20 years, as Berlin became the de-facto capital of Europe and therefore attracted people from all over the world in their pursuit of happiness.
2. Changes Related to Corona
Apart from the immediate effects, the Covid-19 pandemic is expected to have some long-lasting impact on the market. This is mostly due to changes in behavior, which will live past the lockdown.
- City centers laying down to rest – Why the idea of “downtown” will soon be a thing in the past.
People change, and so changes the overall lifestyle. As a side-effect of work from home, many people will no longer pass by any shops or cafes when going to or coming from the offices.Furthermore, many have lost their interest in bars or clubs for various reasons and internet retailers such as Amazon offer more than any single shopping mall can hold.
Adding the growing popularity of Video Streaming Services and similar it is obvious that way fewer people will want to pay a quite large sum for a cinema ticket, where they neither sit cozily nor put the film on hold when going for snacks or the toilet.
With many entertainments and shopping facilities fading, there is is a whole range of ideas on how to make use of the space becoming free. One major idea is that we will see a reclamation of urban areas, with families happily moving in former consumer palaces.
On the other hand, outsourcing every purchase to the internet would necessarily come along with a major increase in delivery services, putting even more pressure both on logistic companies and on city planners to find a solution that is acceptable for all parties involved.
For the investor that means you should stay away from high-street malls selling what is already available everywhere on the internet, and be flexible with every new development
- More Work from home – Fewer offices
Many people working in offices got used to the idea of working from home. That means, they will not want to go back to their office working places after – and if – everything went back to normal. So there will be less demand for office buildings in the future, especially for those located in the very city center for image reasons. Clerks will be happy not to spend hours in traffic jams anymore and prefer to sleep longer and spend time with their families. It depends on agreements between employees and companies about surveillance systems, project management, and the cost of office equipment, whether the whole concept will succeed.
- Offices need to be larger because of hygiene
Nevertheless, not everyone will want to work from home. Everything that – still – requires human interaction or where workers prefer to see each other life will still see humans sitting together in one room. But people will want these rooms to be bigger than before so that they have some more personal space and do not get infected. While this seems like a safe option to those unwilling or unable to leave their familiar environment, the creative atmosphere of millennial offices with their open spaces will maybe forever remain a thing of the past.
- Need for bigger homes which are suitable for home office
Last of all let’s have a look at those places, where many plans to be working from during the next few years. In the past, many people held a small apartment in a central area, worked in an office not too far away, and spent both work and leisure outside of the home. Restaurants, gyms bars and so far provided enough distraction that many saw their flat only for sleep and dressing. So they didn’t ask their home to be large or too cozy, as they hardly ever saw it. With the pandemic, they will suddenly need much more space, both to work effectively and to feel fine there. That means that the demand for larger homes will rise and many will even want to leave the city to have more space and more green around them; given that they find proper infrastructure and internet connection there.
3. Economy-related Shifts
- Investment Crisis – Everyone is heading towards Real Estate
The interest rates in many European countries have been very low or even negative for a couple of years, with the base rate of the European Central bank standing at -0,88 for more than 4 years in a row. While it’s expected to remain at such a low level, many investors consider Real Estate very appealing. Buildings are seen as crisis-safe, reductant to economy floats, and can even bring some profit. This is, even more, the fact as not debts are easy to make, but also equity exists in large amounts. Unfortunately, given the stagnation on the stock market, any other forms of investment seem less appealing.That leads to a rise in buying and selling prices of real estate, in the end being added on top of the rent price.
- Rising taxes on homes to finance Corona makes rents even more expensive
As a side-effect of Corona, governments around the globe did spend a lot of money to stimulate the economy. Germany alone spends 350 billion on helping companies and entrepreneurs, with 150 billion financed through loans. That means that this money has to be brought back somehow, and it is partly refinanced through higher taxes and fees in the real estate sector. That means that both buyers and tenants will have to pay more than they paid one year ago.
4. Green Housing
A bit neglected, but not forgotten is the overall trend of green housing.
Even though COVID 19 drew away from the attention from the debate on global warming and similar, in the end, the Eco-Industry might even be pushed by the pandemic.
While so many people sat at home during the worldwide lockdowns, people shared stories on the internet of wild boar strolling through suburban areas and even of dolphins who were claimed to have “returned” to the waters of Venice, Italy, were for the first time in decades was no single cruise ship to be seen. So humanity was reminded of the importance of preserving nature, and they will proceed to do so when life finally goes on.
So any kind of home improvement that adds to preserving the world around us will be highly appreciated.
Not to mention that many of these improvements, be it insolation or a new heating system help not only to save the environment but the wallets of your clients.
Together with many other topics changing from day to day, as the side-effects of the US-China Trade War, the European Market remains way more unsteady than the American market. But even with the challenge arising to understand a market out of 26 countries, legal systems, and currencies, adding more than a dozen languages, it is still worth a try. In the end, Europe is still the most popular continent with tourists and both western and non-western people, and of course, offers estates and properties of the highest value.