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Secular demand drives Living sector activity

Global Real Estate Perspective, November 2020

Structural demand has continued to drive investment activity across the Living spectrum. This pressure, combined with strong pricing, has meant that complementary segments to core multifamily have been attracting increased attention. This includes single-family residential, which has also benefitted from Covid-related demand side factors, alongside coliving and retirement properties.

Asking rents in January and February moved into positive territory in the U.S. Elevated concessions and the re-opening of businesses has led to a pickup in demand in urban locations as the number of tours and leases signed increased over the first quarter. Data for February shows overall rent collections at 93%, broadly stable over the last 12 months. Comparable JLL data from the UK for January shows a modestly elevated 97% rent collection level. Prime occupancy in the UK slipped by 0.5% to just over 95% in that time.

With heightened near-term income risks impacting demand from new entrants, conviction buyers already long on the student housing and Later Living sectors have benefitted. For the student sector, restrictions on movement are hampering academic institutions from committing to full classroom experiences for the 2021/22 academic year, impacting international student income in Australia, UK and U.S. markets. The weight of ambition for greater Living exposure is likely to increase bidding competition, particularly where proven operators are in place to derisk management for these more complex sectors.

Future trends: Long-term appeal and stability underpin high investor demand
  • Short-term: Liquidity in the Living sectors will continue to increase as investors seek opportunities across a broader range of sub-sectors, including affordable and workforce housing, alongside suburban rental assets. Student investment will continue to experience headwinds in markets that still have uncertainty over returning occupation for the next academic year.
  • Long-term: The combination of capital allocation weighted toward Living assets and a surge in activity for ESG solutions will impose ongoing price pressure and specific opportunistic activity supporting new urban stock. This will evolve to provide a more sophisticated range of products to meet demand expectations. The Later Living sector will receive overweight attention, as this generation of active retirees has the capital to support strong rental growth aligned with high-quality, technology-enabled care provision. Investment activity will involve consolidation and a premium for best-in-class operator platforms.