Investing in Residential
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Institutions are at home with the asset class
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Building on China’s wave of urbanization
Where we choose to lay our hat and call home is changing. Whether by choice or necessity, people are living differently to previous generations. Fewer are chasing the idyll of buying the big family home in leafy suburbia. Affordability constraints are making this path a pipe dream for a growing number; and a new era of renting is dawning. Why the shift? Urbanization and other demographic trends.
The world population hit 7.6 billion in 2017, with 54 percent now confirmed urbanites, according to data provider Statista. Fast forward to 2050 – the world population is projected to reach 9.8 billion with 70 percent located in urban areas. We are an aging world too. The UN reports the 60-plus age group is the fastest growing demographic, at a rate of about 3 percent per year. By 2050, the organization projects all regions, except Africa, will have at least a quarter of their populations in this age bracket.
These forces are putting unprecedented pressure on existing housing stock in major cities. Demand is outstripping supply, forcing prices, for purchase and rental, upward. Structural solutions to modern housing needs are required. Signs are the residential real estate market is responding. Multifamily, for example, is now an established part of the picture in the US and increasingly in Europe, and investors are plowing capital into this space, attracted by good risk-adjusted returns. In Asia, multifamily is still in its infancy, so there is room for growth here. Other types of housing stock are coming to the fore too: co-living and micro-apartments, affordable workforce housing and senior living.
The student population is also putting pressure on urban residential capacity. Appetite for educational attainment shows no sign of abating and major cities offer top-class learning and the best job prospects. Demand for student accommodation naturally is on the up.
These trends are certainly challenging on many levels, but they open compelling investment potential too. The demographic direction of travel should sustain demand for these new types of housing. Niche they may be now, but in decades to come they are likely to be the norm. Fund managers and investors take note. If you are not pursuing these opportunities already, it might be time to take a serious look.
Enjoy the report,
Helen Lewer
Special Projects Editor
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