Home away from home? Europe and APAC living sectors’ appeal amid US uncertainty

As the notion of US exceptionalism finds itself under scrutiny, global investors are considering similar asset classes abroad, particularly in Europe and Asia-Pacific (APAC), and especially the living sector which offers attractive risk-adjusted returns amid evolving global dynamics.

The US currently accounts for approximately 37.5% of income-generating real estate worldwide, yet it commands a disproportionate 65.1% of MSCI Global Real Estate assets under management². This concentration risk, set against a backdrop of uncertain macro conditions, is pushing investors to diversify by exploring regions that offer greater stability and growth potential.

In the US, residential market yields have been squeezed by extensive institutional ownership and fierce competition, trailing office yields by 100-200 basis points. In contrast, key urban centres across Europe and APAC paint a starkly different picture.

Marcus Eilers, Head of M&G European Residential, elaborates on this disparity: “Unlike office markets, which are heavily tied to the economic success of their surroundings, residential markets remain resilient and enjoy strong rental growth even during economic turbulence.”

In Europe and APAC, these markets benefit from a favourable spread above the cost of capital, drawing investors who are in pursuit of superior returns in a stable environment.

Eilers further notes that the perception of living investments as lower-yielding has been increasingly challenged over the last 20 years. Factors such as supply-demand imbalances and regulatory influences have enhanced the value of these investments in Europe, contrasting sharply with the US office market, which faces volatility from overpricing and the shift to remote work.

David Askham, Director of Portfolio Management for M&G’s Asia Pacific Living strategy, observes similar trends in Asia, where living assets exhibit low volatility and outperform commercial real estate in terms of risk metrics. He adds that Asia’s broader economic indicators showcase strong GDP growth prospects, rivalling that of the US.
 

Supply constraints anchor steady rental trends in Europe and APAC

Beyond immediate yield performance, broader structural trends are reshaping the global market. A higher interest rate environment is reshaping demand fundamentals, leading to delayed homeownership and longer rental durations in major urban areas.

Despite similar global trends, the divergence in regional housing supply is pronounced. In the US, although affordability challenges remain due to gaps between income levels and housing prices, there is a significant surplus of housing units.

From 2000 to 2020, production exceeded household growth by 3.3 million units³, facilitated by abundant land, efficient construction processes and diverse financing options. Reflecting this excess, rental apartment vacancy rates in the US reached 7% as of June 2025⁴, markedly higher than those in other global markets such as the UK (3%)⁵, Germany (2.5%)⁶, Tokyo (3.2%)⁷, the Nordics (4.5%)⁸ and Australia (1.2%)⁹.

Conversely, Europe and some parts of APAC are experiencing sharp declines in new housing supply, which are expected to persist below immediate demand levels in the short- to medium-term. This ongoing shortfall is further compounded by a historic undersupply that remains unaddressed.

“The general notion that European countries are building less than they should be building is true,” Eilers says. He points to external factors, such as the COVID-19 pandemic, geopolitical tensions from the Ukraine conflict and interest rate hikes, which have further intensified the structural challenges already present in the region.

“These issues,” he explains, “compounded by inadequate construction and regulatory constraints, result in a persistent imbalance between housing demand and supply, thereby underpinning the investment rationale for entering European residential markets.” 

Some parts of APAC encounter comparable supply constraints, with Askham particularly noting that historically from 2016 to 2024, Australia’s housing stock grew by about 1.7% per annum, whereas the number of households increased by about 2.4% on average¹⁰.

“The biggest factor is encouraging supply,” Askham stresses, pointing to initiatives that stimulate development through collaborations between the government and private sector, including tax reductions for Built to Rent (BTR) properties.

This disparity in housing supply dynamics is influencing rental trends globally. In the US, where housing delivery has been extensive, rental prices have largely remained flat, barring pockets of market hotspots like New York or San Francisco. On the other hand, rents across European and APAC cities continue to outpace inflation, driven by acute supply constraints and persistent demand pressures.

Analysing rental growth across market cycles, data consistently indicates higher volatility in the US compared to most other global markets. Factors contributing to this include economic fluctuations and regulatory shifts affecting market stability, which are even more pronounced now. Europe and APAC, however, tend to offer more predictable growth trajectories, presenting a compelling case for investors seeking steadier returns.

Investor bottom lines, or net operating incomes, have also been impacted by rising operational costs in cities with flat rental growth. Inflationary pressures coupled with escalating demand for sophisticated amenities are driving expenses upward, particularly in the US multifamily sector. High-end, amenity-rich apartments are notably impacted as these costs continue to climb.

Amid these pressures, Japan presents a resilient multifamily market, ranking as the world’s third-largest, behind only the US and Germany in size. Known for its liquidity and transparency, Japan’s multifamily assets have been favoured by global investors for their low vacancy rates, robust cash-on-cash yield and minimal income volatility. In the last three years, residential rents have started to grow significantly faster due to wage growth. With strategic leveraged positions at a 50% loan-to-value ratio, we believe investors can potentially achieve total returns exceeding 10%¹¹.

Simultaneously, we believe the Northern European multifamily market offers promising investment opportunities, driven by strong household growth and a high tendency to rent. Cities such as Amsterdam, Copenhagen, Berlin and Stockholm are particularly promising. Even with limited new housing supply, these cities, alongside others, maintain solid occupational profiles and effectively strike a balance between affluence, livability and dynamism. This combination presents compelling prospects for achieving risk-adjusted returns in the sector, in our view.
 

Migration trends could boost demand for student accommodation

In the US, ongoing policy discourse and tensions within higher education stand to deter international students, who may increasingly seek alternative study destinations. With countries such as Australia, Japan and Korea offering increasingly appealing alternatives, combined with supportive policies across various European markets, a shift in preference among international students is likely.

Should half of the Chinese students currently enrolled in US institutions choose alternative destinations, international enrolments in student markets across the APAC region could rise by 10-20%, according to our estimates. Further afield, mature European markets with an existing depth of Chinese student demand could also gain, including the top three countries currently preferred by outbound students: UK (150,000), Germany (39,000) and France (26,000).  

Institutional investors, recognising this trend, are increasingly turning their focus to Purpose Built Student Accommodation (PBSA) as a key area for allocations, especially as this sector matures across Europe and APAC. In Southern Europe, for example, the student housing market remains robust, with demand and supply fundamentals strong in Italy (2.1 million students versus 85,000 beds), Spain (1.8 million students versus 120,000 beds) and Portugal (450,000 students versus 16,000 beds).

International student enrolments here have grown by over 7% annually in the past five years, while an increasing share of domestic students opt to study away from home¹². Yet, the region faces the lowest provision rates in Europe, if not the developed world, with 19.5 students per bed across Southern Europe compared to 5.6 elsewhere on the continent.

In parallel, Australia, boasting one of the highest population growth rates among OECD countries, has set an ambitious target for a 9% annual increase in international student enrolments by 2026¹³. The country’s appeal to international students may lead to a narrowing yield premium over residential properties, driven by enhanced attraction and demand.

Askham highlights Australia’s geographical advantage as an attractive destination for students, pointing to Melbourne’s vibrant student housing market. This proximity, alongside geopolitical shifts affecting US student flows, has boosted demand and occupancy rates significantly in recent times.

Continuing with Australia as an example, Askham reflects on the initial lack of clarity in the BTR market, with developers oscillating from offering minimal amenities to an extensive array without fully comprehending actual market demands, resulting in higher rents.

He advises focusing on essential amenities, like gyms and social spaces, that genuinely address tenants’ needs, while suggesting caution with extraneous features unless in the case of targeted high-end developments. Streamlining amenities can minimise operational costs, leading to reduced rents and improved tenant affordability. 

As global student mobility patterns evolves, leveraging local expertise to navigate cultural preferences and regional demands becomes increasingly important. By aligning strategies with these dynamics, we believe investors can position themselves advantageously in the PBSA market.
 

Regional living markets find room to grow in the ‘great rotation’

Globally recognised as a key investment priority for real estate investors, the living sector consistently ranks at the top of investor preference surveys, driven by its capacity to generate robust and expandable cash flows underpinned by enduring structural tailwinds. Spanning PBSA, multifamily housing, single-family, co-living and senior living, the sector captures diverse needs across life stages, catering to younger populations, expanding households and ageing demographics.

A significant shift in investor focus is currently underway, driven by policy changes, increased market volatility and saturation within certain market segments. This evolving narrative, dubbed the ‘great rotation’, has steered investor attention toward Europe and APAC, where living assets offer compelling risk-adjusted returns, in our view.

In times of economic and policy uncertainties, the living sector stands resilient, appealing to investors seeking diversification and sustainable growth. As US holdings encounter pressures from concentrated market share, regions like Europe and APAC benefit from favourable demand-supply dynamics and robust growth potential, aligning well with broader demographic trends. Through this transition, investors are finding new avenues to navigate global market complexities.