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For European investors, the US real estate market offers lucrative opportunities. The U.S. real estate market is the largest in the world. For example, a total of 79 billion euros was invested in Germany in 2020, according to CBRE. In contrast, the transaction volume in the U.S. totaled $383 billion, according to consistent reports from various portals.

The fundamentals

Those looking to invest in America will find several reasons to do so: The United States Census Bureau forecasts a total population growth of 27 percent to 417 million people over the next forty years. This will require millions of new jobs to be created and homes to be built. According to the Wall Street Journal, there is already a shortfall of 3.5 million multi-family units in the U.S. To meet this considerable demand, coupled with the billion-dollar infrastructure package from the Biden administration, the real estate industry offers tangible opportunities.

Key figures US economy
SOURCE: BUREAU OF ECONOMIC ANALYSIS, *FORECAST: FEDERAL RESERVE BOARD (MARCH 2021)

In mid-May, the U.S. housing index showed another increase of 13.3 percentage points in home prices year-on-year. According to Craig Lazzara, responsible for the index published by S&P, homebuyers are increasingly moving to suburban areas, causing prices to rise. The U.S. housing market generally isn’t suffering from the Corona crisis; on the contrary, low interest rates, security-driven demand for real estate and rising demand for housing continue to drive prices higher. “As a portfolio addition and for risk diversification, American real estate in the right region is ideally suited,” says Volker Arndt, Managing Director of US Treuhand.

S&P / Case-Shiller real estate index for the USA
SOURCE: VALUE AG / COLLIERS RESIDENTIAL INVESTMENT 2020/2021

A residential market with potential

According to Volker Arndt, large flows of internal migration are taking place in the USA. Their preferred direction is mainly U.S. gateway cities in the South, such as Orlando, Raleigh, Austin, Las Vegas, Charlotte or Phoenix. This is due to the generally higher quality of life because of lower costs and taxes, more space and the pleasant climate. The losers in this development are primarily the Northeast and Midwest, but also the large and expensive metropolitan areas in California.

A further trend that is fuelling demand and prices in the U.S. residential sector, similar to that of Germany, is a “segregation” of society to single households which increases the demand for housing. “Even if the ownership rate remains constant or even rises slightly, more rental housing will be needed in absolute terms due to demographic effects alone,” says Robin Cunningham, Economist and Housing Market Expert at the German research firm “bulwiengesa”. This is supplemented by strong economic growth and thus higher prosperity.

Rented US housing stock
MILLION. HOUSING UNITS | SOURCE: REAL CAPITAL ANALYTICS

According to the United States Census Bureau, there are 44 million units available for rent, of which 20 million are in the multifamily segment with more than five units. The multifamily segment thus accounts for nearly half of the total U.S. rental real estate stock. The National Multifamily Housing Council predicts a need for an additional 389,000 units in 2022 and 2023. Investment in multifamily assets reached more than one-third of transaction volume in 2020. In the fourth quarter of 2020, this share even rose to 40.7 percent.

A look from an investor’s perspective

The latest figures from research institute Yardi Matrix on the multifamily segment underscore the expected growth demand for rental apartments. Year-on-year rents rose 1.6 percent from last month, the largest gain since the pandemic began. The outlook for the second half of 2021 is also positive as the labor market regains momentum. Demand for multifamily housing was unexpectedly high in most parts of the country over the past year. About 252,000 housing units, or 1.7 percent of total inventory, were absorbed.

Comparing key metrics, a clear trend can be recognized. While 2019 yields for residential real estate in Europe were below 3 percent, the U.S. offered 5.5 percent. Numerous estimates from major brokerage houses continue to predict similar equity returns in the U.S.

SOURCES: (1) JLL (2) EUROSTAT (3) STATISTA (4) US CENSUS BUREAU

The general economic outlook

Few countries have been hit as hard by the Corona pandemic as the USA. Nevertheless, Americans have come out of the crisis surprisingly well so far, and the outlook for the economy seems robust. 87 percent of the Q1 2021 earnings figures published so far by companies in the S&P 500 exceeded analysts’ estimates. The quarter before that, the rate was 76 percent. According to CBRE estimates released in April 2021, U.S. gross domestic product growth is expected to be 6.7 percent in 2021. All signs point to a rapid recovery, with growth levels well above subsequent years (for comparison, 2.2 percent in 2019).

U.S. Treasury Secretary Janet Yellen did cause a stir recently with her remarks at an event hosted by The Atlantic. The key monetary policy rate could be “raised moderately” should the economy show signs of overheating due to the thrust of the trillions in aid from the government and the Federal Reserve. However, revised her statement shortly thereafterMentioning that she did not expect inflation to be a problem for the U.S. economy and noted that she was neither predicting higher interest rates nor recommending a hike.

Thomas Landschreiber

Principal & CIO

Michael Qamar

Investor Relations

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