According to results from several studies published worldwide in recent weeks, by 2030, one-third of all global direct investment in real estate will occur within the residential sector, rising from 25% in 2020 and 14% in 2010.
Growth in the residential sector is based on capital flows, as well as favourable market conditions as a result of the current demographic situation, economic situation and the low-interest rate policy, or even negative, as for example in Germany. These are all factors that will drive expansion in established markets and will also accelerate growth in emerging or secondary markets, such as Portugal.
Residential investment will rival traditional commercial real estate asset classes, including offices, over the next decade as capital allocations change and portfolios become more diversified. This increase in capital flows is mainly concentrated in the conventional multifamily or build-to-rent segments, as investors increasingly recognise the favourable return profile, growth opportunities and rental fundamentals offered by these specific residential assets.
In 2020 alone, the "Pandemic year", approximately $200 billion was invested globally in the residential sector by international investors, and it is anticipated that investor appetite will increase significantly.
The cash-flow stability and operational resilience of the residential sector, particularly through cycles and periods of economic uncertainty, are recognised by investors and developers and as such, investors and developers will stay and expand beyond the established institutional markets.
Investors are watching the consistency of their investment returns in the residential sector, and this performance may well challenge the office sector's investment position. In the previous economic cycle, annual growth in investment volumes reached 17%, significantly higher than in office and retail.
It is of utmost importance for all players in this segment to keep the following considerations in mind: there is a housing shortage in every country, supply does not cover demand and thus it is a monumental challenge for many markets. On the other hand, it is a simple rule of the market: where there is demand and lack of supply, the product will always have a buyer and prices will not go down, but up.
New challenges such as migration and changing ways of living and population movement are a key consideration in housing demand. Influenced by the pandemic, many residents have moved from small units in the urban core to spacious accommodation in the suburbs. Long-term trends, however, continue to favour urban conglomerates within cities.
In the past, it was mostly the younger generations who looked for rental housing. Today this is no longer the case due to lack of purchasing power among other factors, meaning renting is the principal option for an increasing number of people. Millennials will be complemented by the comparatively large z-generation, underlining sustained medium and long term growth opportunities.
Access to housing is increasingly difficult as it is not matched by the evolution of wages and productivity, rising raw material costs and skilled labour. This makes it increasingly unaffordable for a majority of the world's population to buy their own homes and therefore to rent.
National laws, taxes and regulations have a brutal impact on the real estate market and in particular on the residential segment. If there is no profit, you can't buy or rent, if there is no security in the collection of the rent, there will be no investment or purchase of the property, if there is no legal security for landlords, they will rather sell than rent.
Creating housing is therefore an issue that should be treated with the utmost political sensitivity, and there are very good examples of this worldwide and in Europe. Take, for example, the case of Germany, where private individuals who create housing space for third parties do not pay rent tax and thus manage to maintain rental pri