Across Europe the Multi-family sector appears as one of the most dynamic asset classes of the commercial real estate sector, given the growing demand of residential units to let in the main city centres.
Even in Italy it is possible to find the first initiatives relative to investments of residential units to let. However, despite the growing demand of residential units to let in the main city centres, the Italian market suffers a lack of product due to the parcelling-out of the properties and the almost total lack of freestanding buildings, in addition to other legal-fiscal problems hindering the equivalence of residential investments with a real business activity.
The gamble on the residential segment will be played in the next years with the beginning of important urban development initiatives, firstly in Milan, where investors and public institutions are highly interested in the growth of supply of residential units to let.
Thus, given the lack of product on the market, the Build-to-Rent (BTR) phenomenon is expected to be an emerging trend in the coming years in the main Italian metropolitan hubs such as Milan, including a significant number for affordable housing.
Which are the five most important factors influencing the BTR market in more mature markets across Europe?
1. Location & Accessibility
Across Europe, as well as in Italy, the residential sector is highly influenced by location (i.e. city centre vs periphery) and by accessibility. Proximity to public means of transport and good levels of amenities and services in the surroundings are key for occupiers.
2. Socio-demographic changes and trends
NeSocio-demographic changes and trends strongly influence the residential asset class. In the EMEA region, all over the countries, in the main metropolitan hubs the growing population is strongly influencing the residential sector; the necessity to face and satisfy the increasing demand of residential units in the metropolitan areas is moving the attention of most investors towards growing cities. The residential market is also influenced by age bracket trends of the occupiers (i.e. young professionals, students, young couples, etc.), whose needs are characterised by different levels of flexibility in terms of length of stay, amenities required, sizing of the spaces.
3. Socio-economic aspects
Socio-economic aspects of the occupiers (i.e. gross disposable income per capita by country, etc.) are relevant in the identification of the ideal residential product for investors. The rent affordability is the most important driver for occupiers who want to live in the main metropolitan hubs.
Moreover, the rental housing is strongly influenced by the demand of the major urban areas with a more dynamic lifestyle. As a general view, in the past renting was seen as a temporary solution, however it has recently become a new lifestyle for many people; for instance, millennials are choosing more and more sharing solutions, not only in terms of housing but also services (i.e. car sharing, etc). On one hand it can be seen as a new approach of a generation which prefers to spend more of its income on experiences and quality of life, on the other, it is related to the levels of gross disposable income - which is rather low in countries such as Italy, Spain and Ireland, thus reflecting the difficulty of buying a house, and the choice to prefer a rental solution.
4. Design quality, architectural specifications,layout optimisation
Design quality, architectural specifications, layout optimisation and type of finishes are key factors for the residential sector. The end users are more and more oriented towards new residential solutions, which guarantee less costs of ordinary and extraordinary maintenance. Moreover, the utility of the space, which is a key driver in the choice of residential units, on sale or for rent, is driven not only by the square meterage but also by the design and the layout of the floor plan.
With regards to the multi-family sector and more in detail to BTR (Build-to-Rent), dwellings are built and designed in order to be let out to residential tenants and not to be sold to potential home-owners.
Design reviews are carried out taking into consideration not only the needs of the end users but also the requirements of the operator, who is in charge of managing the property as efficiently as possible, and the best scheme which allows the investor to reach greater returns.
5. Investment returns
In Europe the residential sector is showing good levels of returns with lower levels of risk with respect to other asset classes. In fact, the multi-family sector is more and more appealing among investors. Institutional ownership of multi-family assets has been rising over the past years and this trend is expected to continue.
The multi-family sector offers opportunities for a different kind of investor, including institutional, public and private REITs and private capital.
However, the Covid19 pandemic is currently accelerating some of the trends described above and fostering new innovative solutions which are expected to impact the residential segment in the next future. The pandemic is also rapidly changing our housing needs, especially due to new ways of work and the spread of smart and remote working. It’s essential to monitor trends and their evolution to better understand the future of this sector and to anticipate the needs of new occupiers.
with the collaboration of Residential Investment
Properties and Research Teams.