The global ‘renter revolution’
We hear from James Mannix, Head of Global Living Sectors at Knight Frank, about the growing global trends within the sectors.
4 minutes to read
Around the world, the way people ‘live, work and play’ is transforming. From Europe to North America, Southeast Asia to Australasia, real estate and its function within society is shifting – and accommodation is at the heart of this lifestyle revolution.
Globally, the ‘Living Sectors’ (PBSA, BTR and seniors housing) are experiencing unprecedented levels of investor interest and growth. Existing players are expanding their exposure, while new entrants – especially traditional commercial investors – are increasingly gaining access. My prediction is that within a decade, the living sectors will become the world’s largest investable asset class.
"My prediction is that within a decade, the living sectors will become the world’s largest investable asset class."
Navigating this dynamic and changing landscape will present challenges, and there is currently significant fragmentation across global geographies and sub-sectors. While market nuances and distinctions will always exist at a local level, there is a real opportunity to pool knowledge and share experiences to turbo-charge the world’s global living sectors. Penetration rates vary significantly between countries, and even regions or individual towns and cities, but at a macro level renting will generally become the new norm the world over and we should use this as an opportunity to learn and grow by tracking renter trends and preferences.
"Penetration rates vary significantly between countries, and even regions or individual towns and cities, but at a macro level renting will generally become the new norm"
The past year hasn’t been without its challenges for the sector. Hyperinflation in many markets across the world, Russia’s invasion of Ukraine, and the banking wobble in the US has temporarily stalled the growth of the global living sectors.
The cost of debt was pushed up substantially last year, making it more expensive than the income it could cover in many cases. Asset prices were pushed down to cover the increased cost of debt, while investors using core capital or all-in equity increased. Meanwhile, fewer private equity firms have been entering the space because the returns are lower and it has become harder to accelerate returns on investment.
Light is at the end of the tunnel, however; interest rates are going to peak and become more competitive, and more debt will come back into the market in the final quarter of 2023. On the equity side, a lot of capital has been raised and not spent, which will see global transactional activity pick up in Q4. I firmly believe that by the end of this year the global living sectors will be kicked into high gear.
A global ‘renter revolution’
There is a compelling case for investing in assets that benefit from changing ways of living, and which provide strong counter-cyclical features and inflation-matching characteristics. Weaker economic growth around the world means we are going to see a global ‘renter revolution’.
We expect to see an uptick in student numbers in the coming years – often a knock-on effect during periods of economic uncertainty – which will increase global demand for PBSA. Meanwhile rising affordability pressures in many markets mean structural imbalances between supply and demand for rental property are acute in a number of locations globally, making BTR highly sought-after by renters. In areas with an ageing population, demand for age-targeted seniors housing will also continue to grow, while affordable housing is counter-cyclical and often undersupplied.
Crucially, these trends have a global relevance, and support our prediction that the living sectors will be near the top of the shopping list for globally mobile capital this year and beyond, as commercial real estate investors look outside of their home markets for scale, yield and diversification.
Historically, that has been led by North American investors, and while that will remain the case, increasingly we are seeing an increase in capital flows from Asia Pacific, the Middle East and Europe. Capital will continue to become more mobile relative to the sector, as global investors ‘shop around’ for the best opportunities.
"Capital will continue to become more mobile relative to the sector, as global investors ‘shop around’ for the best opportunities."
Right now, investors have a unique opportunity to acquire living sector assets at a price cheaper than they were before and what they will be again. My advice: take advantage of this unique situation and buy while we are in this dip as it won’t last for long and the renter revolution is coming.
If you missed the latest webinar: Unlocking opportunities in the Living Sectors, you can watch on-demand.