Tentative signs of improving investment activity

The long-running undersupply of homes and constrained affordability in many global housing markets continue to underpin the investment rationale for the living sector, with momentum building in the U.S., Asia Pacific and Europe despite continued market uncertainty. Investors pressed ahead with long-running strategies to acquire living assets in Q1 2024, albeit at modest levels compared to the past 5-10 years. While some investors are still waiting on reductions to central bank policy rates before fully committing to new opportunities, living investment activity is expected to grow through 2024.

The U.S. living sector opened the year with optimism despite a heavy supply pipeline and an elevated interest rate environment dragging on transaction volumes. Bright spots in spring leasing momentum and large-scale M&A deals in the multifamily space have driven renewed investor conviction. Living markets in Europe are beginning to rebound, with an increase in the number of deals during Q1, although an absence of larger transactions and portfolio sales saw overall volumes decline. In Asia Pacific transactions rose by 10% year-over-year as investors increased exposure to the sector. A consistent stream of new project announcements and partnerships across the region will lead to a greater level of transactions in stabilized income-producing assets in coming years.

Future trends: Living sectors remain on long-term growth trajectory

Short-term: Investment activity for the U.S., Asia Pacific and European living sectors should increase through 2024, despite lingering market uncertainty and caution around central bank policy rate expectations. Deal flows are steadily increasing, and there are signs that larger deals of over US$500 million will become more active as 2024 progresses. A growing spread of living models targeted at specific demographic groups – such as purpose-built student accommodation and co-living – will account for a greater share of volumes in many markets.

Long-term: With a continued shortfall of homes to meet the demands of approximately 80 million new urban inhabitants around the world every year, capital flows will resume their long-term growth trajectory in major living markets. While the UK will continue to pip Germany as Europe’s largest living market in the short term, the latter will re-establish its dominance as the continent’s largest market in the next three to five years. Australia and Japan will be among the fastest-growing living markets over the longer term as income-driven housing models, which are currently more common in other regions, take hold.