A new report released today reveals that €23bn has been earmarked for investment into Europe’s living sectors over the next five years. The European Living Sectors Investor Survey report by Knight Frank surveyed 51 institutional investors who currently have a combined €67bn of residential assets currently under management across the continent.
Of the investors surveyed, 78% plan to significantly increase their exposure to the living sectors in the coming years. 49% also expect to have invested across purpose-built student accommodation (PBSA ), Build to Rent and seniors housing, up from 25% who currently have investments across these sectors. Knight Frank finds that by 2028, these investors will have invested €90bn within these sectors across Europe – up 34% on current investment volumes.
“The living sectors in Europe are viewed as a very attractive investable asset class given the wider market uncertainty. As a result, many investors are planning to significantly increase their exposure over the next five years. Growth is supported by both long and short-term tailwinds, while demand is underpinned by a fundamental undersupply. The countercyclical nature of the living sectors makes them an attractive hold given current uncertainty. With affordability issues across the continent making it ever harder for people to buy a property, demand for rented homes has never been higher. Meanwhile, student numbers across Europe continue to rise – further increasing the need for PBSA.”James Mannix, Global Head of Living Sectors, Knight Frank
Diversification of capital has been an ongoing theme for investors in recent years, with this set to continue as they look to shield themselves against potentially difficult economic challenges.
This is reflected by the results of the survey – 54% of respondents said that the current geopolitical and macroeconomic environment had made investing in the living sectors across Europe more appealing.
“A myriad of geopolitical and macro-economic factors have contributed to strong investor interest for the living sectors in Europe in recent years. The varying maturity of the living subsectors across the continent offer a diverse range of opportunity for different risk appetites. However, while investor appetite is strong, barriers of entry still remain high, with demand outweighing the amount of built product available.”Stuart Osborn, Head of European Living Sectors Transactions, Knight Frank
London remained top of the list as a target location for investors across all living sectors. Madrid came in second choice for PBSA and PRS, with Milan second for seniors housing. Other locations in the top ten include Paris, Berlin, Glasgow and Dublin.
80% of investors also said that they believe schemes with strong sustainability credentials will command a value premium.
“Our third annual European Investor Survey highlights both the resilience of the living sectors over the last year, as well as pointing to its evolution in years to come. Investment volumes may have dropped back this year, but the living sectors continue to maintain their significant share of overall European property investment, at around 21% over the year to date.
“The intended level of future diversification is far greater than that outlined in our previous surveys and represents a tangible shift in sentiment as investors look to flex and pool operational expertise. The focus from investors on blended strategies, on new sectors, new types of development and new products will continue to underpin activity, and this is likely to increase significantly as headwinds ease.”Matthew Bowen, Head of Global Living Sectors Research, Knight Frank
Regulation was identified as a barrier to deploying more capital, with rent controls flagged as a major concern by almost half of investors. The biggest challenge identified was the cost of finance – 61% said that the higher cost of debt was a barrier to deploying more capital, which reflects the sharp increase in financing costs over the past 18 months.
“While they have eased slightly from recent highs, Euro area swap rates remain more than 50 basis points higher than a year ago – a move which has increased costs for investors. With returns being affected across the capital spectrum, the living sectors have not been immune. That said, these challenges can be addressed with a proactive approach.
“Exploring innovative non-bank debt and equity solutions can provide investors with the tools they need to navigate the current landscape. Furthermore, the early indicators that the base rate may have peaked will buoy investor confidence.”Lisa Attenborough, Head of Debt Advisory, Knight Frank