Investors from Europe are showing a renewed interest in residential assets, as more capital is flowing into the housing segment. The allocation of European investment capital to residential assets has grown significantly with diversified flows into multi and single family housing as well as student, co-living, and senior accommodation. The resilience of the housing market, the ongoing long term urbanisation trend, as well as its inflation hedging properties serve to attract a greater proportion of institutional funding into the residential real estate sector.
Residential assets have caught up with commercial assets in share of investor portfolio with Knight Frank data showing they comprise a quarter of property acquisition activity, up from 10 per cent a decade ago. Only offices comprise a greater composition of investment which seek secure, high quality income streams. Trends such as hybrid work, large scale regeneration and infrastructure development underpin these investments.
Germany, the UK, and Spain have been identified as the top three countries expected to have the best prospects for investment. The Knight Frank European Residential Investment Survey accounts for €64 billion in residential assets under management across Europe and attributed the strength of student, commuter and retirement demand acting as favourable indicators.
Investors are able to leverage synergies and insights into residential portfolios to enhance returns. As such 91 per cent of respondents to the Knight Frank survey plan to broaden their horizons in the residential sector over time. Supply constraints, affordability concerns, and fragmented rental inventory offer significant opportunities for purpose built operational real estate to thrive.
Despite uncertain conditions, occupancy and rental collection rates remained consistently high throughout the pandemic. In the UK for instance, many multifamily real estate developers and operators were able to keep levels above 95 per cent, epitomising the strength of these fundamentals. Investment in residential assets was €15 billion in Q3 2021, up 28 per cent relative to the same period in 2020.
Currently, just 18% of respondents invest across all the residential sectors in Europe - from student to seniors housing. In five years’ time this is expected to rise to 45%.