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Continued resilience of the living sector

Global Real Estate Perspective, November 2020

The continued resilience of living sector cash flows relative to other real estate has provided justification for the ‘beds and sheds’ investment strategy bias of recent years. Although the sector has not been unscathed - notably there have been material negative impacts in the student and seniors housing sectors - the stable cash flows that are its hallmark have largely continued.

In the United States, a bifurcation has emerged in residential rents and occupancy performance between high-cost, Class A product and more affordable Class B and Class C assets. Newer assets in oversupplied submarkets are witnessing larger concession packages. In Europe, the expected softening of residential rents and occupancy has not yet materialized in lower-value segments of the residential market. The living sectors in Asia Pacific are in their infancy except for Japan, where the well-established multifamily market has been characterized by resilient rents and occupancy throughout the pandemic.

Source: JLL, 2020

Investors continue to target multifamily across the globe, including some notable deals in Europe. In Asia, greater multifamily allocation has put Japan on course for a record year in investment volumes, while in the U.S. volumes have also remained resilient and ample investor capital continues to seek acquisition opportunities.

A longer-term perspective: The race for scale

In the mature U.S. market, investment activity in the multifamily sector will continue to be refined by evolving location demands through and beyond the pandemic. Activity will skew toward outer suburban zones, complementing the strong existing offer for well-connected urban assets.

Elsewhere, the multifamily sector will be characterized by ambitious growth in assets under management. Where markets are rapidly expanding, for example in Ireland, the UK, Spain and Australia, build-to-rent opportunities will continue to be determined by their economic viability linked to achievable rent levels. In more stable markets, such as the Netherlands, Germany, Sweden and Japan, yield pressures for existing stock will be complemented by a drive for asset renewal. Asset management to modernize and personalize the professional manager’s offer will be highlighted by technology investment to better capture customer data and drive a process of ever more personalized service.