Living in pole position

While 2023 and 2024 formed part of a ‘reset’ in real estate marketings globally, our view is that 2025 will form the start of a new real estate cycle with the Living sector in prime position to be a standout performer in Europe and the UK.

According to JLL, investment in European Living rose 19% in 2024 to €53 billion, following a final quarter surge. The 125 basis point reduction in European Central Bank rates over the last 7 months has delivered a markedly positive change to sentiment and activity within Eurozone markets.

Our expectation is that ECB rate reductions will continue to drive investment activities over the 1st half of 2025. The UK rate environment is more challenging but even here, we expect the more gradual decline in Bank of England rates to feed through to improved activity in 2025.

European student housing will lead the way

The European PBSA is the strongest conviction theme for most of the limited partners we speak to. The supply/demand imbalance is already stark, and growth in international student numbers will continue gathering pace over the coming decade, driven by relatively low tuition fees and the rapidly increasing availability of English taught courses at those universities.

Meanwhile, the provision of well designed purpose-built accommodation remains limited, particularly in Spain, Germany and Netherlands – markets where we are active and see significant investment potential. Student expectations in these markets are not being met by the existing provision much of which is older, poor quality stock and provides little in the way of facilities and services that together create the sought-after ‘living experience’ today’s students want.

In spite of a growing development pipeline, we’re not going to come close to meeting demand. Germany and Spain, for example, currently have provision rates of less than 10%, which gives some indication of the scope of investment opportunity.

The UK market is more challenging

Investment in UK BTR surpassed £5bn for the first time in 2024, the fifth consecutive record year for investment, but the more gradual reduction in interest rates mean the flow of investment remains constrained. It’s certainly still a more challenging environment, but we do expect activity levels to improve over the course of this year.

The investment case is undeniable, which is why - despite the obvious challenges - living remains top of the list for institutional investors seeking long-term growth. Across the board, supply is failing to meet demand, but investors need to balance risk with returns available across other investment strategies, so finding the right framework, for example through innovative financing structures, is key to unlocking growth.

The government’s focus on housing as a driver for economic growth is very encouraging. Of particular importance will be reforms to improve the planning system to reduce timelines and costs by removing some of the most arduous rules and regulations we are forced to navigate in order to bring forward high-quality housing projects, which we know the market is crying out for.

Pension reforms should also have a significant impact on investment activity, enabling funds to merge and potentially unlock billions of pounds of investment for major housing and infrastructure projects.

ESG remains a key criteria

The landscape may be shifting in the US, but in the UK and Europe ESG continues to be a key criteria for investors.

Across all sectors, we are seeing buildings with high sustainability credentials achieving markedly higher capital values and rents, making them a far more appealing proposition for investors.

Blue-chip global lenders are looking to build lasting relationships with ESG-focused sponsors and create resilient, inflation-linked income streams. Within our own portfolio, we are working with some of the most respected institutional investors in the world, including Invesco, Nuveen and Fiera Capital, and in every case the ESG credentials of the projects involved were a critical factor in their decision-making.

We expect to see more emphasis on the return on investment achieved by any green actions, and this fits with Amro’s approach of being led by performance data, value and ROI when it comes to ESG decision making.

With interest rate reductions and the activation of meaningful planning reform, will come substantial growth in living. Investors are eager, and once the right conditions come together it will attract considerable institutional capital to drive the next phase of market evolution.

This article was first published in Green Street News.