Investors moving to residential sector

Tim Harrup

The most recent real estate segment to have become mainstream is residential, and it has, in some quarters, become known as ‘Living’. Real estate advisor JLL, in conjunction with Aberdeen Standard Investments, has just published a survey on how the segment is beginning to impact the overall European investment scene among the major players. The survey finds that the last 12 months has seen an acceleration towards Living investment, as owners look to reposition portfolios, pour new capital into the sector, and take advantage of the benefits Living has to offer.

The survey starts by saying that demand for Living assets has remained resilient throughout the pandemic. 2020 saw 83.4 bilion Euros invested across European Living, up 10% compared with 2019. It talks of capital looking for perceived safe havens, searching for stable income streams, and increased competition for the best assets. But there remains an element of uncertainty about how the following months and years will play out from both lifestyle and economic viewpoints.

Respondents to the survey had a weighted average of 13% of their real estate investment allocated to Living across the continent, which would rise to 21% if their full ambitions were achieved. While the current status of allocations appears above market standard, the outlook target is broadly in line with our expectations for the sector. Living currently accounts for 25% of all direct real estate investment in the EMEA region, up from 9% back in 2010.

The Living segment has already spurned sub-segments, and the JLL/Aberdeen survey finds that currently, only 8% of respondents have exposure to all five sub-sectors: student housing, coliving, multifamily, affordable housing, and healthcare. If ambitions are achieved, this will rise to over one quarter (27%). At the other end of the spectrum, over one third (35%) have experience in only one or two sectors. For new investments, investors tend to see multi-family as the easiest sub-sector to access, followed by student housing, while healthcare is the most difficult. Affordable housing and coliving are more niche, often constrained by regulations and lack of market liquidity.

Where the reasoning behind the shifting investment scene is concerned, the survey finds that in this year’s results, the top three drivers for investing in Living have remained the same. There has been a change in the most popular primary reason, with a favourable supply and demand balance overtaking the attraction of a stable long-term income stream. Investors into Living real estate often have a longer-term investment horizon and can be more focused on the supportive structural factors underpinning demand for homes of people at different life stages. The Covid pandemic has reinforced the investment rationale for the Living sector. The constrained supply of affordable homes has gained greater attention and sources of sustainable income have been acutely in focus. Against this backdrop, investors globally are more polarised in their allocations to sectors benefiting from structural change, of which the Living sectors continue to be a key beneficiary.