Rising interest in alternative living sectors

Strong demographic drivers and uncertainty in global investment markets are benefitting relatively higher-yielding alternative living classes such as purpose-built student accommodation and healthcare housing as investors allocate a growing share of capital to these subsectors. The importance of a university education as an employment differentiator has perhaps never been higher than in the current age of artificial intelligence, while the world’s ageing population continues to drive the need for more age-related housing solutions.

The U.S. living sector saw varied performance in Q3, with deal flow slowing to US$22.5 billion, the lowest quarterly total since Q1 2020 and the onset of the Covid pandemic. Student housing and single-family rental (SFR) continue to attract a range of new capital; 59% of all buyers of U.S. student housing in 2023 are new entrants into the space. Investment into student housing and healthcare accounted for over half of regional Q3 living volumes in Europe, up from a quarter of investment during Q2. The living sector was the second largest for Europe during the quarter, behind offices, with year-to-date investment volumes for the two sectors neck and neck. In Asia Pacific, living volumes totaled US$1.3 billion in Q3, rising 61% year-over-year from a low base. We expect transactional activity in the Asia Pacific living sector to accelerate in 2024 as developments start to reach completion and investors become more comfortable with underwriting investments in the sector.

Future trends: Construction challenges exacerbating housing shortfalls

Outlook for 2024: Elevated multifamily completions in the U.S. through 2024 will lead to subdued rental growth, but project delays are rising amid difficult construction conditions. Construction companies across the world are facing challenges, with company failures in the U.S., UK, Germany and China all reaching multi-year highs as firms struggle with rising material costs, debt costs and labor shortages. This will see many structurally undersupplied housing markets in Europe and Asia Pacific continue to experience strong rental value growth over the short to medium term.

Long-term: Political pressure will see many countries place a bigger emphasis on housebuilding to alleviate the growing supply shortages in their housing markets. Renting will take on an increased share of the market in many countries with a significant rise in the delivery of new purpose-built rental homes aimed at specific customer groups including students, young professionals and retirees.