4 min read 19 Apr 23
A structural supply and demand imbalance, fuelled by years of underdevelopment, is widening as one and two-person households multiply. This is compounded by the age of existing housing stock, which predates some other parts of the world. As a result, house prices are rising, making it difficult to get onto the property ladder.
Simultaneously, Europe’s population is ageing, creating a requirement for more age-appropriate housing. Eurostat projects a 17.5% increase (16.7 million in absolute terms) of individuals in the EU aged 65+ in the next decade.
“A deep understanding of market nuances is critical to getting it right as an asset manager and owner, given major cultural differences across Europe,” says Marcus Eilers, Head of European Residential, M&G Real Estate.
“While in Nordic countries, for example, seniors typically live alone for longer, often in large houses that are challenging to maintain, French people are more likely to proactively seek suitable accommodation for retirement.” An established market for independent senior housing, known as EHPA, means the French market accounted for 40% of European senior living investments in 2022, according to CBRE.
“Or in the case of student housing, demand for professionally managed, purpose-built accommodation is more established in the Netherlands and Italy but has only gained traction in Germany in the last few years,” continues Eilers.
Consider another example: highly amenitised apartments in buildings with concierge, gym and shared lounge facilities are popular in the UK among 25-35-year-olds.
“This could become a blueprint for European markets with established student housing sectors as graduates progress to the next stage of the living cycle. However, this model is less likely to succeed in Germany – with the exception of cities with large expat populations like Berlin – since people tend to have a clearly divided budget for housing, fitness and leisure.”
Existing Build to Rent stock is currently limited, so access to living sector investments is primarily driven by development fundings. Where viable, M&G also seeks to retrofit existing buildings to elevate sustainability standards.
“In central Helsinki, we were able to preserve a landmark Art Nouveau building in the repositioning of a historic warehouse to 124 private rented and serviced apartments,” says Eilers.
The building also includes a rooftop winter garden, as well as a mix of retail outlets at ground level based on local residents’ needs. It has achieved the highest green building certification for a property of its class in Europe for features including a powerful cooling and heating recovery system, which captures and re-uses waste heat to improve efficiencies.
Europe’s diverse living sector offers significant potential to generate attractive, long-term risk-adjusted returns, in addition to portfolio diversification and inflation protection.
Though not immune from current economic headwinds, the sector has remained relatively resilient, largely owing to the necessity of housing. A shift towards rented property in times of uncertainty and a high interest rate environment has even accentuated demand.
“High-quality properties are likely to be least impacted by price adjustments resulting from higher interest rates. Yet reduced competition for assets could create an opportunity to secure buildings in key locations at improved pricing,” says Eilers. “Local market expertise will be fundamental, to create additional high quality, sustainable housing supply.”
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.