1 European markets mature

Multifamily markets in countries like the UK and Ireland are close to reaching the stage at which the first generation of fully stabilized assets is sold into the institutional investment market. “We may have the evolution of a whole new sector in the UK,” says Bill Hughes, global head of real estate research and strategy at the real estate and private markets division of UBS. “It is one thing to build a new idea and establish it, but another thing to stabilize it and transact. We could see real tests of that market over the next 12-24 months that define where pricing will be.”

Jeremy Plummer, global chief investment officer at CBRE Global Investors, adds: “Appetite from institutional investors will increase as it becomes more proven and clearer where the long-term demand will be and for what kind of private rented sector product.”

2 Opportunity zones drive activity in the US

Established under the Tax Cuts and Jobs Act 2017, the opportunity zones program offers tax breaks for investors willing to invest capital gains in the country’s distressed areas. Tim Wang, head of investment research at Clarion Partners, says 8,700 zones have been certified by the US Treasury Department, with investors awaiting the final guidelines. “Of those zones, one third look very appealing from a real estate developer’s standpoint. We believe that will incentivize the development of multifamily in underserved communities.”

GTIS Partners is also focused on opportunity zone-related developments, says its founder Tom Shapiro. “We are doing several projects now. Plenty of areas like the boroughs of New York City make a lot of sense, and we have a large project in Mesa, Arizona, that is in an opportunity zone and will work very well for build-to-rent.”

3 China opens up

China lacks a purpose-built PRS sector, but that could soon change: “The Chinese government realized a couple of years ago it was missing a large component of the market and began to aggressively create a regulatory framework for rental housing,” says Bob Faith, founder of Greystar Real Estate Partners, which achieved a $450 million first close in February for a China-focused fund.

In July 2018, CPPIB also announced it would enter the multifamily market, providing $817 million to back developer Longfor Group.

4 Affordable housing investment

Some cities already have an oversupply of luxury apartments, but there is enormous unsatisfied demand for more modest accommodation. In March, UBS Asset Management recapitalized the Avanath Affordable Housing I fund, which invests in US affordable housing developed under tax incentive programs. “Initially they have a slightly better yield and in a well-balanced market they have good growth potential,” says UBS’s Bill Hughes.

CBRE Global Investors raised £250 million ($323 million; €289 million) for a UK affordable housing fund last year: “There is potentially a good synergy between the affordable housing sector and UK pension funds that are interested in an income yield with some sort of inflation connection and that want to make a social impact investment while being willing to accept a low return,” explains Jeremy Plummer.