Investment into the global residential sector has risen rapidly, increasing by 56% over the past five years, making it now the second most popular asset class for real estate investment, after offices.
Savills states that investors are shifting their focus towards operational residential assets in the search for income, with the student, senior and multifamily housing sectors being key beneficiaries. Multifamily housing is by far the largest of the three sub-asset classes: despite global headwinds, investment into multifamily has grown, with $97 billion invested in the first half of 2019, a 13% increase compared to H1 2018. Global investment into multifamily reached record levels in 2018, exceeding $210 billion, a 14% increase on 2017. This means 2019 could be on track to be another record breaking year, says Savills.
Savills recorded that $17.4 billion was invested into student accommodation globally in 2018, marginally down on 2017 volumes, but the third year in a row that volumes exceeded $16 billion. The US and the UK are the most mature markets for this sector, equating to 63% and 23% of investment respectively in 2018, while Western Europe accounted for 12%.
Investment volumes into senior housing neared $15 billion in 2018, a 17% decline from 2017. However, much like multifamily, Savills says interest in senior housing remained strong for the first half of this year, with volumes totalling $7.6 billion and a marginal (2%) increase compared to the first half of 2018.
Cross border investment into student and senior housing has been led by a smaller number of pioneering investors. Between 2013 and 2018, the top five players accounted for 59% and 37% of the total cross border investment into student and senior respectively, compared to 26% for multifamily in which a larger number of investors are active. At a European level, Germany’s Vonovia and Sweden’s Heimstaden are actively purchasing assets in other European markets such as Austria and Denmark respectively.
Paul Tostevin, Director, Savills World Research, says: “Demographic trends are working in investors’ favour. By 2050, the global population of student age is estimated to reach 1.3 billion people. Those aged 25-39, a key demographic for multifamily housing, will reach two billion and the over 65 population will reach 1.6 billion, according to UN forecasts. This represents growth of 11%, 13% and 113% respectively, presenting a huge opportunity, particularly for the senior sector where demand for specialist accommodation is expected to greatly outpace supply.”
Marcus Roberts, Director, Savills Operational Capital Markets: European Senior Living, Multifamily and Student Housing, says: “The supply/demand imbalance in operational residential real estate presents an enormous opportunity. Taking into account mobile students only, Italy has the potential to almost quadruple the current supply of beds while Spain could double the current number, each to around 200,000 beds, before becoming fully supplied.”
Roberts continues: “For each form of accommodation, proactive management and tailoring the assets’ features to meet the residents’ requirements will be essential to achieve operational efficiencies. Investors’ search for secure income streams will continue to underpin interest across ‘alternative’ residential assets. Pioneer investor-developers will be integral to delivering new supply, securing tomorrow’s investment stock.”
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