The research also shows that capital targeted at the sector from funds has risen by 60% in the last four years, from $16.4 billion in 2016 to $26.3 billion in 2020.

The sector’s resilience and strong fundamentals hold true in today’s challenging macro environment, with demographic trends and affordability constraints continuing to drive demand for rental accommodation. As such, investment volumes in the first three quarters of this year were down 31%; the least dramatic fall alongside logistics (-16%) compared to offices (-37%) and retail (-38%) when benchmarked with the same period in 2019. 

Paul Tostevin, Director, World Research at Savills commented: “Even with wider global uncertainty as a result of Covid-19, the operational residential sector has held up better than some others this year. Investment activity has largely been driven by the consolidation of companies across sub-sectors including multifamily and student housing. Despite the near-term effects of the pandemic from a macro-economic point-of-view, the longer-term growth in capital volumes targeting operational residential assets speaks for itself. Investors are not only seeking to diversify their real estate portfolios, but are looking for those stable income-streams for which the sector has become so renowned.” 

The report shows that cross border investment into the operational residential sector has also grown, now standing at $46 billion (Q4 2019-Q3 2020) and accounting for 22% of total investment into residential. This is up from the 14% that cross border deals accounted for just four years ago in 2016.

Kamil Kowa, Management Board Member, Head of Corporate Finance & Valuation, Savills Poland, said: “The private rented sector is just emerging in Poland, but paradoxically it has been accelerated by the current situation. On the one hand, this results from stable income streams generated by rental apartments and student housing - even during the pandemic most projects boast high occupancy rates. On the other, the challenge now is investing in traditional asset classes such as shopping centres, hotels or even offices, with investors more willingly targeting assets previously called alternative. On the supply side, there has been a significant change to the approach among many residential developers who are appreciating the diversification of sales channels provided by institutional investors buying entire buildings - frequently as early as upon issue of a building permit.”

By far the largest of the global residential sub-sectors, 2019 was the most successful year-to-date for multifamily assets with $223 billion traded. Of this total, 71% was in the US, the largest and most mature market, followed by Western Europe at 24%. As the sector develops outside of the US, the Western European (including the UK) share increased to 27% in the first three quarters of 2020. Germany was once again the largest market in Western Europe, with €15.6 billion of transactions in the first three quarters of 2020 according to Savills data.

Student housing also proved its resilience despite the headwinds brought about by Covid-19 and, as a result, the effects of disrupted school and university terms. In terms of active investors, Blackstone was once again a dominant force; their private equity fund purchased iQ Student Accommodation for £4.7 billion, which was the largest ever private property deal in the UK. Similar to multifamily, consolidation has been a key driver in the student housing sector: in the UK, Unite Students REIT purchased Liberty Living from the Canadian Pension Plan Investment Board (CPPIB) for a reported $1.8bn.

2019 was also a record year for senior living investment globally, with investment volumes reaching $21.4bn. Despite figures so far this year remaining subdued to-date (69% below 2019 volumes), Western Europe’s share of total investment (excluding the UK) increased to 20% (Q1-Q3 2020) up from 15% for 2019.

Marcus Roberts, Head of European Investment and Development, Operational Capital Markets, Savills, added: “2020 has seen some truly impressive transactions in the operational residential sector, cementing it as one of the most favourable asset classes. With the long-term picture showing an uptick in global mobility, we expect significant opportunities to remain for investors wishing to diversify their real estate portfolios.

“While there is no shortage of capital targeting the sector, the challenge (and opportunity) in Europe, at least, is finding prime development sites, completed assets or conversion prospects in which to invest.”