Living Investor Survey Report (EMEA and Ireland)

INVESTMENT IN THE LIVING SECTOR

Investment in the EMEA living sector has the potential to reach €70-85 Billion per annum over the next five years, according to new insight from Cushman & Wakefield.

More than half of respondents to the firm’s EMEA Living Sector Survey currently have over 20% of their real estate portfolio allocated to the 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 €1.4 Trillion in global commercial real estate assets, reveals strong optimism for growth in the sector, 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.

Tom McCabe, Head of EMEA Living Research & Insight at Cushman & Wakefield, commented:
“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.”

BARRIERS TO INVESTMENT

Whilst UK and German markets look set to benefit most from recovery in living investment volumes, Ireland has registered as one of the more attractive markets for living investment, a clear signal that investors are aware of Ireland’s uniquely positive demographic backdrop.

The tight supply/demand picture in Ireland’s living markets sees investment trend towards both PRS and PBSA, however affordable and social housing emerges as another area of interest. In spite of favourable leanings towards the Irish living sector, investors did stress two significant barriers to further investment, with rent caps cited by over half of respondents (53%), alongside political interference (14%) and planning issues (12%).

Tom McCabe said: “It is testament to strong demographic fundamentals that Ireland emerges as a frontrunner for living investment beyond the core European market, with a strong economic outlook. However, it is not without its challenges with investors citing both current rent caps and political interference as barriers to investment despite the otherwise favourable picture.

“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.”

KEY DRIVER OF DEMAND GROWTH

The 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.

Tom McCabe said: “Investment in the living sector tends to home in on private rented and purpose-built student accommodation, 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.”