€23 billion heading for European living sectors by 2028

Surveying 51 institutional investors who together currently have €67 billion of residential assets currently under management across the continent, Knight Frank said 78% of investors plan to significantly increase their exposure in the coming years. 

The property consultancy found that by 2028, the group of investors surveyed will have €90 billion invested across built to rent (BTR), purpose build student accommodation (PBSA) and seniors housing assets across Europe – an increase of 34% on current investment volumes.

Stuart Osborn, Head of European Living Sectors Transactions at Knight Frank said: “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.” 

James Mannix, Global Head of Living Sectors at Knight Frank added: “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.” 

London remained top of the list as a target location for investors across all living sectors. Madrid was the second most popular choice for PBSA and PRS, with Milan second for Seniors. Other locations of note in the top 10 include Paris, Berlin, Glasgow, and Dublin. Broadly, the responses suggest a focus on liquidity and safe havens with some opportunistic investment. 

Of those investors surveyed, Knight Frank said 49% expect to have invested across BTR, PBSA and seniors housing by 2028, up from 25% who currently have investments across all three primary living sectors. Diversification of capital has been an ongoing theme for investors in recent years, and this looks set to continue as investors seek to diversify income to shield against potentially difficult economic challenges. 

This is reflected by the results of Knight Frank’s investor survey – some 54% of respondents said that the current geopolitical and macroeconomic environment had made investing in the living sectors across Europe more appealing. 

Co-living and flex living was identified by the firm has a huge area of growth over the coming years, with 69% of investors planning to invest in these sectors in the coming five years – up from 49% who are currently invested. 

Meanwhile, 80% of investors surveyed by Knight Frank said they believe schemes with strong sustainability credentials will command a value premium. 

Regulation was identified in the report as a barrier to deploying more capital, with rent controls flagged as a major concern by almost half of investors. However, the cost of finance was identified as the biggest challenge; 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.

Lisa Attenborough, Head of Debt Advisory at Knight Frank commented: “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.” 

Matthew Bowen, Head of Global Living Sectors Research at Knight Frank concluded: “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”