European living sector poised for extreme growth

80% of investors polled for Cushman & Wakefield’s inaugural survey expect their investment in the living sectors to increase over the next five years.

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Real estate service provider Cushman & Wakefield has revealed insights from its EMEA Living Sector Survey that shows investment in the EMEA living sector has the potential to reach €70bn to 85bn per annum over the next five years.

Over half of respondents to the firm’s survey currently have over 20% of their real estate portfolio allocated to the living sector, and nearly 80% expect their investment to increase over the next five years. The report, based on polling institutional investors responsible for managing over €1.4tn in global commercial real estate assets, reveals strong optimism for growth in the sector.

The prediction for progression has been driven by demographic changes, lack of supply and societal megatrends. This is reflected in 2023 investment volumes, with 22% of all real estate investment volumes in Europe now coming from the living sector, up from just 6% in 2007.

“It was undoubtedly a challenging year for the living sector in 2023, yet we’re buoyed to see optimism from investors. Our survey confirms the sector is firmly cemented as an essential component of a well-balanced commercial real estate portfolio, and investor appetite for the stability and demographics-driven growth it offers continues to expand.

“The ongoing climate crisis has impact far beyond real estate, yet within the living sector the shoots of optimism are indeed green. The carbon impact of the built environment is well known and reflected in the nearly 80% of those polled seeing sustainability as a key portfolio objective, with a further 70% saying they were willing to pay a premium for living assets with strong sustainability characteristics.”

Tom McCabe, Head of EMEA Living Research & Insight, Cushman & Wakefield

Cushman & Wakefield’s survey found that nearly 90% of investors see demography as a key driver of demand growth, with outlook for investment in turn reflecting key catalysts. Factors such as hampered affordability, changing homeownership trends, and increasing numbers of international students all contribute towards prevailing strong demand for private rented sector housing and student accommodation. 

UK and German markets look set to benefit most from recovery in living investment volumes, with the greater propensity for private rented accommodation in these geographies drawing the focus of investors. Beyond these two key markets, geographic bias trends strongly to core European economies such as Spain and France, with Ireland and the Nordics drawing additional interest.

“Investment in the living sector tends to home in on private rented and purpose-built student accommodation (PBSA), and indeed it is these areas where investor interest remains the strongest, with almost all respondents currently investing in PRS, and over half in student accommodation.

“However, our survey shows that investors are keen to diversify within the living space, with segments such as social/affordable housing, senior and co-living are all expected to grow and mature over the medium term.

“However, it is capital value stabilisation that is the topic of choice amongst investors, and we were heartened to see investor sentiment broadly in line with our own views. The economic picture will likely remain unsettled, however just over half of respondents indicated capital values would stabilise by the second quarter of this year, in turn supporting a recovery in capital values.”

Tom McCabe, Head of EMEA Living Research & Insight, Cushman & Wakefield