New research released by JLL shows that the investment allocation to living assets is set to grow throughout 2021, following the robust performance of the market throughout 2020, which resulted in €83.4 billion being invested into the sector. 59% of investors set to increase investment allocation to European Living assets in 2021, but nearly 80% highlight lack of suitable product as a main barrier to investment.
The third iteration of the JLL Living Investor Survey consolidated the opinions of over 40 respondents representing around €9.5 trillion in total assets under management, of which €100 billion is invested in living assets in Europe. Living assets – which brings together the five sub-sectors of student housing, co-living, multifamily, affordable housing and healthcare real estate assets – made up 13% of asset allocations from respondents, with that set to increase to 21% if full investment ambitions were realised. With only 11% of respondents looking to decrease their allocation to living assets, the hunt for suitable stock to invest in is becoming increasingly competitive.
The percentage of respondents looking to increase their allocation to living assets has grown steadily since the first Living Investor Survey from 41% to 59%, and the impact of the pandemic has only served to highlight the investment potential in this sector. While uncertainty from the pandemic persists, high-quality living assets in Europe are expected to remain an attractive area for investment in the coming years. While investors are determined to increase their allocation to the sector, 78% have identified a lack of suitable product as being a major barrier to accomplishing this. In addition, respondents to the survey do not see the supply and demand balance of investment-grade opportunities improving in the near term.
Jeremy Eddy, Head of Living, International Capital Markets, EMEA, JLL, said: “The European living investment market spans a vibrant and varied range of opportunities. Across at least a dozen countries, investors are increasingly finding the chances to deploy capital to meet their needs within living sub-sectors. The last 12 months have seen an acceleration towards living investment, as owners look to reposition portfolios, pour new capital into the sector, and take advantage of the benefits living has to offer. More a wave than a ripple, investment activity is simultaneously both targeting well-trodden deal paths, as well as moving beyond to reach the diversified opportunities living represents.”
While only 8% of respondents have exposure to all five sub-sectors of living assets, JLL’s forecast expects this to grow to 27%. Clearly, there is a substantial shift towards diversifying investments in the living sector, and investors will be growing operational expertise to meet these ambitions. Not only are investors looking to diversify within living assets, but nearly two-thirds (63%) of respondents said they are looking to expand to at least one additional market.
Addressing barriers to entry from an investment perspective, 78% of respondents identified a lack of suitable product as restricting them from investing, which is driving an increasing number of investors to seek out forward-looking deal opportunities with developers. This is evidenced by the fact that 30% of all purchasing activity in 2020 was for assets not yet completed.
Tom Colthorpe, Senior Analyst for Living EMEA, JLL said: “With nearly one-third of living investment directed at development, there is an enormous potential to significantly improve environmental standards. With 85% of respondents having ESG investment criteria mandated for their investments, the new wave of living assets will incorporate green credentials and have social goals embedded from the outset. Enhanced social value will also come through technology solutions that give greater control to tenants and customers to curate their living experience.”
