Living sector remains resilient

Global Real Estate Perspective November 2022

Investor demand continues to target the Living sector but dealmaking is increasingly difficult, with wide bid-ask spreads on transactions, higher financing costs and general caution in the market. As a result, many investors are adopting a ‘wait and see’ approach towards the end of the year and into 2023.

Across the U.S. multifamily sector, fundamentals showed signs of moderation. However, urban markets’ recovery saw greater momentum, with outmigration from gateway markets reversing. The European Living landscape is one of diversity and broad resilience, although asset valuations and understanding market pricing for new deals has been a challenge in the multifamily sector. In Asia Pacific, the successful launch of the first batch of rental housing REITs in China is expected to propel the growth of the rental housing sector in the country and open up a new financing channel for the real estate sector.

This article is part of JLL’s Global Real Estate Perspective

Future trends: Slower short-term dealmaking, but strong long-term drivers

Outlook for 2023: While strong fundamentals still underpin Living investments globally, the sector will continue to face challenges through the coming months on both operational and investment elements. Rising energy costs, particularly in Europe, will moderate the near-term outlook for real rental growth, though government support for household bills will be a welcome boost to landlords. Uncertainty surrounding construction and financing costs will flow through to investor activity and pricing in Q4 and early 2023. Dealmaking will be relatively slow for the next couple of quarters as a result.

Long-term: As more stable market conditions emerge into 2023 and beyond, and stakeholders adjust expectations, the Living sector is poised to remain one of the more favored sectors globally. Owner-occupier housing market price adjustments (driven by higher mortgage rates) will drive solid rental demand, while the structural undersupply of student homes (and other forms of resident-specific accommodation) will continue making the investment case for PBSA and new forms of home, such as coliving. Capex requirements for the retrofitting of older stock, in advance of new regulations, will become an increasing challenge for some landlords, while residents will be more conscious about energy efficiency.