According to global real estate consultant JLL, by 2030, a third of all global direct investment in real estate will occur in the (residential) housing sector, increasing from 25% in 2020 to 14% in 2010. The share of sector in capital flows continue to be supported by favorable winds in demographic, economic and capital markets that will drive expansion into established markets and accelerate growth in emerging markets in Asia-Pacific and Europe .
Investments in the housing sector will rival the volumes deployed in traditional commercial real estate asset classes, including offices, over the next decade as capital allocations change and portfolios become more diversified.
Analysis published in JLL’s Growth Opportunities in Living research report shows that capital flows to the sector have accelerated over the past five years. Capital flows are more concentrated in the conventional multi-family or rental construction market segments as investors increasingly recognize the favorable return profile, growth opportunities and rental fundamentals offered by these living assets. specific. In 2020, around $ 200 billion of global capital was deployed in the housing sector by investors around the world, and with increasing urbanization and other factors, including housing affordability, investor appetite should increase.
“Competition for live products has intensified globally and there is no indication that investor appetite for this evolving asset class will wane. Recognizing the stable cash flow and operational resilience of the living sector, particularly through cycles and periods of economic uncertainty, investors and developers have aggressively penetrated and extended their market position and will seek to expand beyond established institutional markets, ”said Sean Coghlan, Global Director of Capital Markets Research, JLL.
Opportunities for the living sector depend on key demographic trends, economic fundamentals and local regulations, says JLL, all of which have resulted in the development of mature sectors in geographies like the United States, Germany, the Netherlands. Low and the United Kingdom. Although only a handful of markets are currently considered mature, sectoral importance is increasing in economically strong countries like Australia and Canada, while consolidation of ownership is evident in smaller European countries and opportunities. abundant persist in geographically difficult to access areas.
However, JLL’s analysis shows that risk and return potential are not distributed evenly, with markets where supply and demand imbalances are most severe providing the greatest opportunity for market penetration and growth. sector, but with more challenges for investors than mature markets.
“As the industry expands and matures into new geographies, the pools of buyers and lenders are deepening and diversifying. generate strong and consistent returns across cycles, ”says Coghlan.
The consistent returns and rental performance of the housing industry has enabled it to become the most liquid commercial real estate sector in the United States, and it is now questioning the position of the office sector globally in investment terms. In the previous economic cycle, the compound annual growth of investment volumes reached 17%, significantly higher than that of offices and retail. More recently, the diversification of capital flows is leading to increased levels of product competition in the market and pushing investors into previously emerging vibrant markets, notably in parts of Europe and the Asia-Pacific.
According to JLL, the following demand factors and considerations underline the desirability in the sector and the market potential of the development of the living sectors in the markets:
- Urbanization: Urbanization over the past decades has resulted in imbalances between supply and demand and housing affordability issues in many markets. The desire to reside in central, pedestrianized, and bustling neighborhoods has been embraced by both younger and older generations. These factors highlight the favor of denser neighborhoods in terms of rental demand and development pipelines.
- Immigration : Both in cities (between urban and suburban submarkets) and in countries, population movements are a key driver of the demand for life. Exacerbated by the pandemic, many residents have moved from small units in the urban core to spacious housing in the suburbs; however, the long-term trend continues to favor urban submarkets.
- Demographic fundamentals: Historically dependent on younger cohorts, particularly residents in their twenties and thirties, rental housing offers have expanded and are now attracting larger sections of the population. An aging millennial population will be complemented by Generation Z of a comparable size, highlighting the opportunities for sustained growth in the medium and long term.
- Housing affordability: Over the past decade, homes for sale have become increasingly unaffordable for much of the population around the world, due to tight lending terms and limited stocks of homes for sale. In the 24 markets analyzed by JLL, the median home price is more than twelve times higher than the median household income.
- Local regulations: National and local legislation can have an impact on the feasibility and scope of rental and housing markets. Policy makers can implement rent controls to tackle housing affordability, which has an impact on incomes. Conversely, local zoning laws in urban markets can favor higher density housing, stimulating development and demand for rental housing.