This growth in investor appetite is supported by the structural tailwinds that underpin the Living sectors, such as the stark housing supply and demand imbalance. In addition, the Living sectors provide strong counter-cyclical features that help investors achieve consistent returns during periods of uncertainty. As an example, student numbers tend to rise during economic downturns, with students investing in further qualifications while the job market is weaker. This in turn bolsters the Purpose Built Student Accommodation (PBSA) sector.

At present, the most common sectors for Living investors to have exposure to are Multifamily and PBSA, with 84% and 65% respectively of our survey respondents currently active in these sectors. This is reflected in transaction volumes across Europe, with Multifamily and PBSA accounting for 93% of capital invested in the Living sectors over the past 5 years.

In comparison to Multifamily and PBSA, fewer investors are currently active within social housing (24%) and care homes (30%). In part, this likely reflects the specialist nature of these sectors and the high level of regulation. However, we do see that those who have invested in these sectors deployed a significant amount of capital. Around a quarter of investors in both sectors invested €500m. Only Multifamily has a higher proportion of investors (42%) with more than €500m invested. 

Which Living segments will investors target in the next three years?

Multifamily and PBSA are set to remain at the heart of most investors’ strategies over the next three years. Close to three quarters (73%) and two thirds (65%) of investors expect to target these sectors, respectively. Furthermore, investors are aiming to deploy significant capital into these sectors, with 22% looking to deploy more than €500m.

Additionally, Co-Living has been flagged by investors as the third most likely sector to target, with around half (51%) looking to invest by 2025. However, unlike in some of the more mature Living sectors, most investors surveyed said they expect to deploy less than €100m in Co-Living.

Single Family housing and Senior Living were both highlighted as key target sectors, with 43% of investors expecting to invest in them over the next three years. This demonstrates the ongoing maturation of these more nascent sectors, and opportunities for growth that they offer.

Where will investors target in the next three years?

The UK and Ireland were the highest priority markets that investors will target over the next 3 years, followed by DACH (Germany, Austria, Switzerland) and the Nordics. When broken down by priority segments and markets, Multifamily ranked first in the UK and Ireland, but PBSA was the top priority segment for a pan-European strategy.

Also of note was a focus on Single-Family housing across the Nordics.

Return profile and expectations

When devising investment strategies in the Living sectors, respondents weighted Core, Core-Plus and Value-Add fairly equally, with 21%, 38% and 31% respectively, and only 10% targeting Opportunistic strategies.

The high weighting towards Core and Core-Plus strategies is reflected in the return expectations for stabilised Multifamily investments. The majority (60%) of investors expect a 4 – 8% p.a. unlevered total return in the Multifamily sector over the next 3 to 5 years for standing, income producing investments. The majority of the total return is expected to be driven by income, with two thirds expecting a 3 – 5% pa unlevered income return over the same period. The limited expectation of capital growth reflects the challenges of the current macro-economic environment.

Barriers and challenges in the Living sectors

51% of investors highlighted pricing and return profile as a major barrier, which likely reflects the uncertain macro-economic backdrop we currently face, rising debt costs and the difficulty investors are experiencing in establishing where current pricing is.

Investors are also facing challenges in accessing stock / scalability, with 40% highlighting this as a major barrier. This reflects the emerging nature of some of the Living subsectors across Europe, and the need to fund the development of much more institutional grade stock.

Finally, investors highlighted regulatory risk as a barrier for investment, with investors wanting a stable framework within which to operate. Uncertainty created by changes, or even potential changes, makes it more difficult for investors to take long term investment decisions. 

Factors investors consider when investing in the Living sectors

Our survey respondents said they look for favourable supply and demand dynamics, as well as focussing on the ESG credentials of schemes.  

Investors expect the supply and demand fundamentals to remain favourable in major metropolitan areas, continuing the recent trend of investors targeting key European gateway cities.

However, almost half of respondents considered that suburban markets would offer investors favourable supply and demand dynamics over the coming years, reflecting investors’ growing appetite for Single Family housing.

Tertiary towns and rural areas were seen to have the least favourable future supply and demand fundamentals.

How relevant are the following ESG and Impact considerations for you in the Living sectors?

ESG factors continue to drive investor decisions.

In the Living sectors, investors look at the E, the S and the G, in that order. Energy and resource efficiency, and net zero carbon, were rated as the most important considerations by investors, followed by social value and impact.

FURTHER INFORMATION

Savills Operational Capital Markets