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The Generation Game -Student Senior and Multifamily Occupier Demands

Property Markets / Outlook

Australia

Nov 14 2018

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By 2030, 20-39 year old’s will comprise 23% the developed world’s population. Those aged over 65 will have risen to 23%. Understanding the demands of these groups matters as they become major real estate occupiers. 

Youthful cities with strong underlying demographic prospects for purpose-built rental accommodation include Edinburgh, Amsterdam and Copenhagen. Spanish and German cities are ageing fast and may offer the potential for new forms of senior housing – but demand exists across the continent.

Globally mobile students continue to drive demand for purpose-built student accommodation (PBSA),and mainland Europe is attracting more of them. However, PBSA provision remains very low, just 3% in Rome and Porto, and 4% in Florence, Lisbon and Seville.

Investment in residential alternatives of all types is rising. Big-ticket global residential investment volumes exceeded all global retail or industrial investment in the last year. Global student housing investment volumes have risen 87% in the last five years.

Multifamily investment across eight major European markets exceeded €27bn last year, up 19% since 2013. Germany accounted for 54% of investment across these countries. Yields average 3.4%, ranging from 2.1% in Germany to 4.3% in the UK.

Global investors are seeking scale, driving management efficiencies. Student housing has a higher cross-border investment share (46%), but the largest single residential deal last year was cross-border, Blackstone’s $10.3bn investment in Spain.

The rapid expansion of residential alternatives sectors in the US has been helped by the relative homogeneity of its regulatory environment. Investors in Europe have a much more diverse set of national regulations to navigate.

The rise of Gen Y (and Z) 

Generation Y (or millennials) are those born between the early 1980s and the turn of the millennium, aged 15 to 34 (although there is no exact definition). By 2025, this group will comprise over half the world population and account for 75% of its workforce. Understanding their needs and aspirations is therefore important as they become a major real estate occupier. 

Characteristics of Generation Y: 

  1. ■Increased use and familiarity with digital technology
  2. ■More likely to be single than those of older generations
  3. ■Delays moving out of the family home and ultimately more likely to rent
  4. ■Favours city living
  5. ■Came of age and entered the job market at the outset of the Global Financial Crisis
  6. ■Footloose and moves jobs regularly
  7. ■More liberal approaches to politics and economics
  8. ■Better educated than its predecessors 

 

While Gen Y are the first generation to be familiar with digital technology, Gen Z (the demographic group that follow them) are the first to grow up with such technology as the norm. In 2018, there were 82m Gen Zs in the EU compared to 99m Gen Ys. Similar to Gen Y, Gen Z is thought to be liberal and are likely to end up staying at home, or renting, for a long time. 

Growing up during the Global Financial Crisis (GFC), they are generally more price-conscious than Gen Y as a result. City-living, globally mobile, and settling down much later in life, flexible rental products are a natural fit for these groups as they come of age. 

Things look different for China 

While the young generations of the West have felt affordability constraints most acutely, a study by HSBC found that 70% of Chinese Gen Ys are homeowners. China’s previous one-child policy and a historically high savings ratio have meant that the younger generation have been able to draw on equity accumulated not only by themselves but by parents and grandparents. This trend, however, may be rapidly drawing to a close as house prices especially in key cities outstrip savings of those not on the housing ladder, precipitating a similar “have” and “have nots”, as seen around the world. 

The Chinese government is actively promoting the multifamily rental sector, selling plots designated for rental development at much cheaper rates than those earmarked for the sales market. Three key models
have emerged, namely purposely built development, repositioning and refurbishment of existing properties as well as a managers or secondary landlords for individual owners. Ziroom, a company that operates the latter format, currently has more than 500,000 units and is targeting one million units by the end of 2018. 

Ageing populations in the developed world 

As Gen Y comes of age and enters the housing markets and workforce at scale, their parents, the Baby Boomers, are retiring and entering a new life-stage too. The global population aged 65 and above will rise from 612 million in 2015 to 1.5 billion by 2050. Pacific Asia represents 64% of this growth. 

For Japan, this trend is already a reality. Over a quarter of the population is over the age of 65, and by 2030 the share is expected
to reach 30%. China, thanks to its one-child policy, now has a rapidly ageing population, forecast to have almost 300 million over 65s by 2035, up from 160 million today. 

Italy, Spain and Germany are fast-ageing European countries, where more than 30% of the population is forecast to be over 65 within the next few decades. Together they will have an extra 13 million over 65s than there are today by 2035. 

This creates economic challenges for national governments as dependency ratios rise. It also underpins demand for senior housing, but not necessarily in the same form we see it delivered today.

Living healthier, for longer, the new ageing demographic want to live independtaly They want many of the same things Gen Y is looking for; a place where they can be exposed to new trends, access restaurants, and importantly, good healthcare. Many want to be close to their grown-up children, who are navigating national and international labour markets. New, flexible residential models are emerging to serve them. 

Seniors housing rental model 

The senior housing rental model brings amenity-rich rental housing to older generations. Targeted at ‘independent seniors’, it is halfway between a traditional home and a care home, offering the flexibility of rental accommodation in a senior- community setting. 

Extensive shared amenities and events programmes encourage social interaction. Additional services may be purchased on an ‘à la carte’ basis. 

Aesthetically, individual units look like any modern apartment, but with subtle adaptations. There are fewer hard edges, for example, to minimise the risk from accidents. Technology is employed to assist in the monitoring of residents.

In Europe, the model is growing fastest in France, where there are now 45,000 units across 540 schemes. Five operators account
for 40% of the product here (Domitys, Senioriales, Hespérides, Villages d’Or, and Jardins d'Arcadie).

Co – living 

Co-living extends the convenience and amenity of PBSA to non-student markets. Targeted at graduates, young professionals as well as students, they offer fully furnished units, extensive amenities, community events, all-inclusive bills and pro-active management. Designed with Gen Y in mind, they are a natural fit in today’s ‘experience economy’. 

Scale is key. To make co-living work in many markets (especially the UK) it needs to be dense to compete on value with build- to-sell. There are particular planning implications for this, and authorities need to recognise the trade-off between smaller units (and associated space standards) and larger communal spaces. 

For investors, the advantage is a diversified tenant base, not solely reliant on students and the success of the local higher education market. Just as co- working has become established in the office sector in response to occupier demand, co-living is emerging to meet current day residential occupier requirements. And as the boundary between living and working becomes ever more blurred, we can expect to see greater integration of the
two in future. 

For example, WeLive, a co- living operator part of the WeWork group now operates two US schemes. 

Hotel Hybrids

A co-living variant, this hybrid, hotel-style properties offer short and long-stay accommodation with shared amenities including on-site cafés, restaurants and co- working space.

Branding and distinctive design is central to their success, pitched to stand out in a market competing with Airbnb for short-to-medium stay occupiers.

Examples include The Student Hotel, founded in the Netherlands (where student rents are capped), it is aimed at students, short stay and hotel guests as well as co- working members.

Roam, another provider has a broad global network and many of its properties are former hotels. Zoku offers smart designed loft apartments that are connected to social spaces where residents work, meet and have dinner together.

Single Family Rental Portfolios

Much investor and developer activity in the nascent European multifamily sector has focused on blocks of apartments, but purpose- built single-family homes for rent offer just as much potential. In the UK, for example, just 10% of the build to rent pipeline are houses (whereas 60% of households living in the private rental market occupy houses).

But housing-led schemes carry less up-front first because, unlike single blocks, they can be phased to keep pace with tenant demand. Evidence suggests there is deep demand from renters, particularly families, who want more space in properties located close to national road networks.

Sigma Capital has pioneered the model in the UK. Investor-led single-family home rental product is well established in the US. More than 8 million new units of rental housing stock were created in the decade between 2005 and 2015. Conversions of single-family houses from owner-occupied to rental accounted for roughly 80% of this increase, as the single-family share of the total rental stock climbed from 34% to 40% in the 10-year period. Many of these were brought through foreclosure. Invitation Homes is the US market leader with 82,000 properties under management.

While the growth of the sector in the US was built on the GFC and the availability of distressed properties, subsequent operational and management approaches offer broader lessons. Bespoke online tenant portals, pro-active maintenance and smart-home packages bring efficiencies in management and high levels of service demanded by today’s occupiers.

For more, contact Savills for their world research report; 

World Research 

Paul Tostevin 

Associate Director +44 (0) 20 7016 3883 ptostevin@savills.com 

Sean Hyett 

Analyst
+44 (0) 20 7409 8017 sean.hyett@savills.com 

Residential Capital Markets 

Valuations Nick Harris 

Director
+44 (0) 20 7409 8185 nharris@savills.com 

Melanie Bailey 

Director
+44 (0) 20 7016 3729 mbailey@savills.com 

Marcus Roberts 

Director
+44 (0) 7807 999 187 mroberts@savills.com 

James Hanmer 

Director
+44 (0) 20 7016 3711 jhanmer@savills.com 

Ben Norrington 

Consultant
+44 (0) 20 7016 3765 ben.norrington@savills.com 

Andrew Bushby 

Director, Savills Studley
+1 (0) 212 328 3944 abushby@savills-studley.com 

James Snaith 

Associate Director +44 (0) 7968 550 439 jsnaith@savills.com 

Joe Guilfoyle 

Director
+44 (0) 20 7016 3767 joe.guilfoyle@savills.com 

Conal Newland 

Director - Australia
+61 (0) 2821 58 863 cnewland@savills.com.au 

 

 

 

 

 

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