AEW expects higher interest rates and tighter EPC regulations to trigger residential investment opportunities

European residential remains appealing for investors given its defensive characteristics and ability to hedge inflation through income growth, according to AEW.

The firm believes the long-standing residential supply demand gap across Europe will become even more acute. This is due to higher interest rates pushing demand for rental housing and new environmental legislation reducing the lettable stock.

“While in the short term we expect some further yield widening for residential assets, the trend remains highly supportive of continued income growth and values with yield compression expected from 2024.,” said Irène Fossé, director of research and strategy at AEW. “A combination of rising mortgage rates supporting the rental market, a post-Covid return to cities underpinning the secular urbanization trend, as well as positive household formation growth will continue to put further strain on already constrained supply.  We expect this long-standing shortage of ren