What’s driving Europe’s rental market: Student surge and ‘silver wave’

Prior to the 2008 financial crisis, Europe’s housing markets were buoyed by easy credit and rapid household growth, driving both prices and construction activity to elevated levels. When the crisis hit, investor confidence collapsed, lending standards tightened and speculative demand evaporated, triggering a sharp correction despite low post-crisis interest rates. In the years that followed, development lagged behind demographic and urban demand, constrained by regulatory hurdles, risk-averse financing and rising construction costs.

This disparity between demand and supply has drawn increasing interest from institutional investors. In Europe, the living sector is still emerging as an investible asset class, while in the US multifamily housing has long been institutionalised, supported by deeper financing infrastructure, earlier professionalisation and policy frameworks that favour rental housing.

As a result, the universe of investible assets within the European living sector is broadening considerably, offering potential growth that could see the sector more than double in size, according to our estimations.

Despite tight rental markets and rebased asset pricing, we believe the sector presents a strong investment case. In our view, investors can deploy strategic capital in regulated environments with constrained supply to address structural undersupply and potentially secure attractive, risk-adjusted returns. Beyond favourable supply-demand dynamics, living assets tend to exhibit consistently low vacancy rates, lower cashflow and valuation volatility through the cycle and growing alignment with ESG goals.

Europe’s structural housing challenge

European markets remain beset by a structural undersupply of housing, driven not just by development lag but by systemic barriers to new construction. Housing completions are failing to meet demand, with 5.5% fewer dwellings built this year compared to 2024¹ and permitting activity at decade lows².

Governments face a complex mix of constraints: slow planning systems, stretched budgets and policy frameworks that continue to favour homeownership over rental development. External factors such as geopolitical tensions, rising interest rates, increased construction costs and economic disruptions like COVID-19 have further stalled supply, deepening the housing crunch.

Despite these challenges, demand for high-quality, professionally managed rental housing continues to rise, fuelled by urbanisation, demographic shifts – including an ageing population and increased student mobility – together with affordability pressures.

The expansion of the Private Rented Sector (PRS) reflects these underlying changes, as tenure preferences evolve in response to delayed marriage, declining birth rates and the growth of single-person households. Rising mortgage rates and elevated home prices are further limiting access to homeownership, prompting younger and mobile populations to remain in rental accommodation for longer periods in both urban and suburban areas.

Amid the cyclical slowdown in housing delivery, pressure mounts on an already constrained and costly rental market. Cities across Europe are witnessing rental growth exceeding historical norms, propelled by strong real wage gains and high mortgage rates. Furthermore, the shrinking availability of both existing and new rental properties continues to push prices upward, all within the constraints of local regulatory frameworks.

This combination of limited supply, affordability pressures and robust rental demand underscores Europe’s structural housing challenge and sets the stage for emerging rental markets.

Europe’s growing appeal in changing student market

Recent policy and rhetoric changes across the ‘Big Four’ study destinations³ have prompted prospective international students to reassess their study plans. This is particularly evident in the US, where we are seeing increased visa revocations and stricter enforcement.

One study choice platform reported a 50% drop in weekly page views for US degree programmes from January to April this year, indicating reduced interest in US education⁴. Even domestically, American student interest in domestic degrees fell by 20.5% in the first quarter of 2025 compared to the same period in 2024⁵.

With this, Europe’s Purpose Built Student Accommodation (PBSA) market is experiencing significant expansion, driven by a steadily increasing influx of international students. COVID-19 prompted European universities to broaden their English-taught programmes (ETPs) and remote learning options, making European institutions more appealing by reducing language barriers and introducing greater flexibility in study modes.

Between 2019 and 2024, ETPs outside the ‘Big Four’ nearly doubled, with 68% in the European Higher Education Area⁶. Online ETPs outside these countries grew by 94.5% during this period⁷. This evolution has catalysed demand for PBSA, which is currently undersupplied in key markets like Germany, France and Spain.

The UK continues to lead this sector, benefitting from the perceived prestige of its universities alongside its English-speaking environment. Nevertheless, European countries like Germany, offering lower or free tuition and attractive graduate routes, have become preferred choices for students seeking affordable education and accessible job markets.

Alternative living sectors such as PBSA are buoyed by strong demand. The market is estimated to have excess demand equivalent to over two million beds, reflecting unmet student housing needs based on study patterns and enrolment trends. The sector showed positive performance in the 2024–2025 academic year, with expectations for continued high occupancy and rental growth into 2025–2026.

Adapting to cultural shifts amid Europe’s ‘silver wave’

A substantial driver of the demand-supply challenge is attributed to the ‘silver wave’, with an increasing demand for senior living facilities across Europe. The share of people aged 65 and over in the EU is projected to rise from 22% in 2024 to 28% by 2045, with the 65+ population increasing by nearly 29 million⁸, while those aged 80+ is projected to reach 64 million⁹.

The rise in Europe’s elderly population is driving heightened demand for age-appropriate housing that combines healthcare services with community-based amenities. Yet, the supply of senior living options is unevenly distributed across Europe, primarily concentrated in a limited number of regions with a pronounced emphasis on public and social housing. Such concentration suggests an opportunity for strategic investments to diversify offerings and expand senior living facilities into underserved areas.

Amid these demographic shifts, cultural variations across Europe significantly influence senior living preferences. In Northern Europe, a trend towards independent living sees higher demand for senior apartments that offer autonomy along with communal amenities for social engagement. Conversely, Southern Europe continues to favour traditional family care models, where multigenerational households remain prevalent.

Addressing market inefficiencies presents both challenges and opportunities, especially as adults continue to reside in large homes post-childrearing, resulting in inefficient resource utilisation and contributing to housing market imbalances. In 2019, 50.6% of seniors aged 65 and over in the European Union resided in under-occupied homes, compared to 34.2% of working-age adults, indicating a need for more appropriate housing options for older adults¹⁰.

Consequently, the popularity of ‘housing with care’ models is increasing, driven by their integration of lifestyle amenities such as gyms and dining with essential care services to enhance the quality of senior living. Options within this framework are gaining traction in Europe, including intergenerational living, where student-senior home-sharing and co-housing between families and seniors promote community ties. Luxury senior living offerings are also expanding, providing tailored care and resort-like amenities.

At the same time, economic factors further influence the sector. High-end developments appeal to those with substantial home equity, while the mid-market must address affordability, with targeted pricing and location selection in cost-effective, less urban regions. Diverse care models, including daycare, are key strategies to engage this segment effectively.

Altogether, the senior living market offers substantial growth prospects for investors who can navigate cultural preferences and economic factors effectively. Effectively understanding and navigating these norms are essential for stimulating demand.

A defensive investment with growth potential

In today’s shifting real estate environment, investing in Europe’s living sector represents a strategic yet defensive approach that capitalises on the enduring need for housing. Demographic shifts present substantial opportunities for income generation and capital appreciation. Increased international student enrolment boosts PBSA demand across Europe, while an ageing population requires more senior living facilities.

As a result, the living sectors – PRS, PBSA and senior living – remain occupationally resilient compared to the more volatile segments like office and retail real estate. This resilience arises from its low correlation with economic fluctuations, offering unique avenues for diversification and the potential for risk-adjusted returns.