With European living real estate investment exceeding €100bn for the first time in 2021 according to Cushman and Wakefield, it is clear investor appetite for the living sectors is far from sated.
By Mary-Anne Bowring, Group Managing Director, Ringley Group
In recent years, student accommodation has served as a principal landing pad for capital deployed in the living sectors, becoming a staple of many institutional investors’ real estate portfolios due to its non-cyclical nature and compelling fundamentals.
However, in many geographies, multifamily housing has long been the mainstay of institutions’ residential holdings.
This may soon change. Differing housing typologies, contexts, policies and preferences of European markets may mean in some countries – where houses are more common than apartments – single-family housing (SFH) becomes the preferred asset class for institutional investors wanting to grow their exposure to European residential real estate.
So far, the main routes investors have taken to enter the UK single-family housing have been to partner with housebuilders, which Sigma Capital has done to great effect, or to acquire existing stock, as proptech firm IMMO Capital plans to do. Apache Capital’s Present Made platform, which is delivering over 3,000 purpose-built and designed homes for rent, is an outlier in promising a bespoke rental product.
Given the immaturity of UK single-family housing, this lack of diversity is hardly a surprise. When multifamily housing was first taking off in Britain, the first generation of Build to Rent apartment schemes were typically forward funded housebuilder developments that were then maybe lightly repositioned for rent. These were practical strategies to maximise yields, rather than differentiated offerings being brought to market.
As single-family housing grows and matures, expect more purpose-built and -designed offerings to emerge. Why? For the same reason investors have grown increasingly comfortable with backing purpose-built and -designed multifamily housing schemes, even if it means taking on more planning and construction risk.
One obvious advantage is that by designing homes from the ground up for rent, you can factor in design features that enhance operational efficiencies and reduce your gross-to-net leakage. For income-driven investors, this is particularly attractive.
While operational considerations for single-family are of course different to multifamily, part of the allure of single-family housing lies in longer term projected occupancy. Data from the US shows single-family communities experience less resident churn, reducing costly void periods, and that renters are more likely to stay for the long-term – not least if homes are designed specifically with the resident journey in mind.
A less clear-cut benefit to design yet to be proven is the provision of amenities at the outset. It’s a complicated formula that took time to mature in other living sectors such as student accommodation and multifamily housing. Given the suburban and rural nature of many single-family housing developments, any future amenity offerings would differ significantly from what is provided at multifamily housing in city centre locations. There would be a greater emphasis on outdoor amenity space, as well as facilities that are aimed more at children, parents and families, rather than young professionals and digital nomads.
Greater amenity provision demands higher rental premiums. With most early single-family housing entrants experimenting with zero-amenity or amenity-lite schemes, it remains unclear how crucial amenities are to the single-family housing consumer offer. The promise of a higher quality, new-build home that benefits from professional management may simply be enough for most would-be single-family housing customers.
Whatever the future holds for single-family housing, expect its trajectory to take inspiration from successes in student accommodation and multifamily housing. This may well mean higher levels of service and amenitisation to drive long-term occupancy and rental levels. If so, single-family housing investors need to ensure they have an adequate operational strategy in place.
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