Real estate is considered the largest and most relevant asset class in the world by both institutional and individual investors. Despite the pandemic, the sector continues to hold its usual place at the top of investment choices. Even though traditional real estate assets are considered inherently illiquid, investors see the value in capital appreciation and the steady yields generated by them.
Institutional investors operate within a competitive environment which demands a continuous effort to track promising assets to place their funds and ensure favorable returns. Alternative real estate developments that surfaced during the last decade are offering tempting advantages to investors such as higher yields, steady and predictable cash flows, with some even presenting the benefit of being counter-cyclical. For heavy weight investors who live by the rule “never put all your eggs in one basket”, assets that embody such traits are an opportunity to diversify portfolios and increase the ROI.
Every year renowned organisations such as PWC, Cushman & Wakefield and Savills, present their reports and insights on the upcoming investment trends in real estate. We have summarised four of the most prominent emerging real estate investment trends that are already grabbing the attention of the industry in 2021.
For at least a decade the student housing / PBSA sector has been incrementally drawing investors’ attention. These real estate assets have a complex nature due to its user’s type, specific legislations and management needs. They usually generate a higher average rent per square metre and provide a higher yield in comparison to traditional housing complexes. As an investment, student housing also presents a counter-cyclical nature since it is able to deliver even during economically challenging periods.
In recent years there has been an unprecedented growth in participation in higher education, which continues to increase demand for student accommodation in university cities. Most of these urban centres are not prepared to accommodate the incoming rush of students, which results in long waiting lists for student accommodation and the inflation of rent cost for family-type apartments that are occupied by multiple students.
In 2019 the european market hit its record high investment volume in student housing / PBSA: €8.8B. The UK was the destiny of 84% of these funds, followed by France. Even though the pandemic put a halt in many development plans, by the end of 2020 multiple projects have already been resumed and the arrival of the vaccine brought hope of a market recovery by 2022.
The shortage of affordable, high quality student accommodation will continue to be an issue after the pandemic is over. It is only a matter of time until investments on student housing / PBSA developments go back to their usual volume. In the next few years it is expected that the UK will continue to receive the largest volume of investment in student housing / PBSA in Europe followed by France, Germany and the Netherlands. Once the market gets back on its feet, specialist developer owner-operators in Spain, Portugal, Italy and Ireland will likely continue their expansion in the european sector.
The true potential of this asset class can only be exploited through knowledge and market expertise, since value for the end users will not be created by only bricks and mortar, but through the quality of concept and overall user experience.
Research estimates that between 2000 and 2050, the proportion of the world’s population aged 60 years and older will double, going from 11% to 22%. This demographic shift towards a progressively elderly population creates a demand for purposefully built senior living spaces.
The senior housing and elder care market is growing at different paces. In the US the number of institutional investors and private equity firms placing their funds in senior living developments grew exponentially since the 90’s, having transitioned from niche to a mainstream investment in the 10’s. In the Asia-Pacific region, Australia is the most developed senior housing market and is currently blooming with opportunities, while Japan is set to be the next in line to catch investor’s eyes. In Europe, the elderly care market is set to grow in the next six years, regardless of the pandemic impact, which will influence the flow of investments directed to senior housing developments.
The ageing of the world's population is increasing the need for housing solutions that combine health care and independent living. Investors that can support smart portfolio acquisitions, such as senior living that demand high-level health care and safety operations, will likely take advantage of great returns within alternative real estate market investments.
Before the pandemic, coliving was already being discussed as the most feasible solution to ease the housing crisis affecting most commonly large urban centers. Coliving developments seek to provide affordable living formats for those having difficulties renting in a saturated market, while also fostering community. Even though the COVID crisis put a break in some coliving developments and compromised the earning of many established operators, the long term outcome of the pandemic will most likely push coliving forward. The pandemic made us go back to interacting predominantly in our homes, with close friends and our immediate neighbourhood, while also connecting us to shops and services online. In 2021, to continue avoiding the spread of the virus we will work and socialise in ever more connected local communities. Such shift promotes life in all its dimensions (living, working, leisure) in multi-purpose coliving spaces instead of segregated, single-function developments (traditional offices and apartment complexes). Indeed, as discussed in Coliving Insights No. 2 entitled “Is Coliving here to stay”, we have learned of the resilience of coliving amid the pandemic.
Cities like New York, London and Paris are investigating new forms of urban living to accommodate the needs of a large number of businesses that are looking to reduce their office and storefront space. We can expect multiple office buildings to be converted into residential spaces to support a wider range of community needs.
Even before 2021 many coliving developments have been resumed showing that trust in the shared living sector is still high. After proving resilient to a one-in-a-century pandemic, this specialist asset class will most likely continue to attract capital from investors looking to achieve steady yields and predictable cash flow through a diversified portfolio.
In 2019, almost 66% of businesses had already embraced a form of flexible-work policy. A recent study by consulting firm McKinsey & Company claims a third of work could continue to be performed remotely even after the COVID crisis is over (in Europe’s leading economies). Moreover, the McKinsey Global Institute (MGI) calculated that over 20% of the entire global workforce (mainly in high-skilled jobs within finance, IT and insurance) could do their job remotely for most of the time and maintain the same productivity.
Being forced to work from home made companies and employees realise there are more options beyond going to the office everyday, choices that can reduce costs for all parties, decrease turnover and increase employee satisfaction. The effects of the pandemic on remote work worldwide, combined with the rise in digital nomadism, will push the demand for flexible working spaces even further than before the pandemic. Remote work does not mean people are willing to be working from home everyday; many workers need a convenient and comfortable solution that will allow them to do their job from wherever they are in the world.
Operators are being approached by an increasing number of businesses seeking to leverage office decentralisation with a flexible Space-as-a-Service. Similar to coliving, coworking spaces will likely bring in investment from those looking to build a mixed portfolio and take advantage from the stable yields offered by specialist real estate investments.
When looking into the most promising emerging real estate investment trends for 2021, one clear aspect seems to connect them all. Student housing / PBSA, senior living, coliving and coworking spaces all share, in a way, a purposeful built-to-rent nature. These four specialist real estate assets are essentially communal spaces developed to attend the needs of a specific target, offering an array of facilities, a dedicated and trained on-site team to guarantee a satisfying experience, all paid through a unique monthly (or periodical) transaction. At this point, we are left wondering: is diversifying purposeful BTR schemes the future of specialist real estate?
If you are looking for a partner that can help you understand and maximise your investment efforts in student housing / PBSA, senior living, coliving or coworking spaces, do not hesitate to get in touch. Stay updated about our upcoming articles and projects by subscribing to our newsletter.