What's driving record European residential investment?
Residential investment sectors are gaining traction across Europe, with 2021 on track to be a record year.
2 minutes to read
Investment into residential assets (encompassing student housing, multi and single family rental, co-living and seniors housing) stood at €15 billion in Q3 2021, up 28% on the same period of 2020. Year-to-date investment stands at €50 billion.
Rising investment is further evidence of the resilience of the ‘living’ sectors which are supported by strong fundamentals across European markets. The quality of income streams continues to underpin investment and attract new players to the sector.
It also means the sector is gaining market share. Residential purchases accounted for 25% of all European real estate acquisition activity in 2021, only behind offices. Ten years ago, that figure was just 10%.
Significant opportunity remains. Affordability constraints in the sales market and increasing urbanisation, as people move for work and study, continues to drive demand for rental accommodation, whilst ageing populations mean there is a need for purpose-built accommodation across age groups.
We expect allocations to residential will continue to increase markedly over the next five years as a result.
This is a view supported by our survey of leading investors active in the sector who, combined, account for €64 billion in residential assets under management across Europe. The results suggest they plan to invest a further €87.5 billion over the next five years.
Key to increasing allocation will be diversifying investment across age groups. Currently, just 18% of respondents invest across all the residential sectors in Europe - from student to seniors housing. In five years’ time this is expected to rise to 45%. While there are significant differences in market drivers, there are also synergies – particularly with regards to construction and operations – which makes the decision to move across sectors more appealing.
Where will capital flow?
The survey respondents also identified the countries where they saw the best prospects for investment over the next five years.
Germany, the UK and Spain were cited most often by respondents across all sectors, suggesting an overlap of the different drivers to provide a favourable investment environment – from strong student demand, the presence of large-scale regeneration and development as well as strong employment conditions, or a lack of seniors housing units. But newer, less mature, markets also featured, with Italy, Ireland and Poland expected to attract a greater share of investment.
Some 55% of respondents indicated they believe the residential investment sector will outperform all other real estate sectors in 2022. When asked which residential sector specifically was most likely to outperform in 2022, our survey respondents suggested that student accommodation would narrowly beat the multifamily and single family rental markets.