Putting local knowledge to work in Europe’s living sector

3 min read 28 Jun 23

Housing is an essential requirement, yet high borrowing costs, the limited supply of properties for rent and sale, and soaring prices present significant barriers to entry for younger people. Moreover, the available housing stock doesn't necessarily reflect the way certain demographics live and work in a dynamic world. What should investors be cognisant of when it comes to Europe’s housing sector?

While affordability constraints in major cities hinder access to home ownership, renting in the private market can also pose significant challenges.

“The way people live in shared spaces varies across Europe, but these nuances can also spark ideas that can be transferred across markets to elevate experiences.”

At the same time, available housing stock doesn't necessarily reflect the way certain demographics live and work in a changing world. Housing needs are really defined, in our view, by age profiles. In turn, those needs are driven by the activities that that cohort is likely to pursue. Those raising a family will have different priorities to university students (in the ‘learn’ phase) or young professionals (those in the ‘connect’ phase of life).

When analysing the rental residential sector, it is crucial to consider the subtleties of varying needs determined by age, or where people are in their lives. This can be categorised as follows:

Learn: Student housing, typically covers 18 to 22-year-olds renting for the first time.

Connect: Generally includes 25 to 35-year-olds, focused on trying to develop both their professional and personal networks, and wanting to live as close as possible to work and friends.

Grow: Characterised by the search for space by 30 to 55-year-olds, as individuals establish relationships and consider their children’s education and proximity to open outdoor spaces.

Relax: People who are closer to retirement (aged 55-75), empty nesters, or retirees.

Reconnect: For those with declining mobility (aged 65+) and where people are under-occupying family homes that their offspring have left.

Degrees of variation

Within these groups lie gradations, which further highlight the importance of having a presence on the ground on a day-to-day basis who understand the nuances of the local market and that take into account given its importance at an operational level.

In Italy, for example, we quickly learned that student accommodation requires a significant amount of freezer storage space.

“Italian parents will typically pack their children away to university at the start of the term with a term’s worth of frozen food, and a standard fridge will not suffice,” notes Alex Greaves, Head of UK and European Residential at M&G Investments. “In the Netherlands, meanwhile, it is vital to have plenty of space for bicycle storage.”

The way people live in shared spaces varies across Europe, but these nuances can also spark ideas that can be transferred across markets to elevate experiences.

“I recently came back from a trip in Lisbon and we saw communal kitchens,” says Greaves. “The idea of the communal kitchen is to deal with the local fire safety regulations where they don't want people cooking in their own rooms. They had these huge floors and it looked like a bake-off tent or a MasterChef room with different ovens and extractor fans and lots of people cooking together.

“Food brings people together so trying to use that across other schemes is a really interesting notion,” adds Greaves.

Environmental considerations

The environment is a key issue for investors in real estate. A large proportion of pre-war and post-war housing stock in Europe has yet to be modernised, with the UK being home to the oldest stock. Given that real estate drives approximately 40%1 of global carbon emissions, this is a priority area in the pursuit of net zero.

Fortunately, there are solutions that can reduce carbon emissions. Greaves explains that new, greener construction methods are being developed, involving timber from sustainable sources and highly energy-efficient construction panels containing hemp.

Indeed, when combined with the installation of air and ground-source heat pumps, photovoltaics and batteries, it is possible to invest in buildings that are carbon negative.

While tackling climate change is vital, Greaves also notes that affordability is a pressing concern, and that solutions to incentivise institutions, investors and developers to increase the supply of affordable housing are required.

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1World Economic Forum, “How do you decarbonize real estate? An expert explains”, (weforum.org), 8 November 2022.

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.