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Recent factors shaping occupier demand
Unemployment spiked in the wake of the pandemic, with the young particularly impacted. Youth unemployment rates (those aged 15-24) across the OECD increased from 12% in January 2020 to a peak of 19% in April 2020. The US, with its highly reactive labour market, saw unemployment rise especially sharply last year, but this has since returned to 2019 levels as the US economy has opened up. In Europe, by contrast, furlough schemes have disguised the true impact of the pandemic on the jobs market, though more positive economic prospects imply recovery is on the horizon here too, as GDP forecasts show (see chart).
Recent factors shaping occupier demand
In spite of headwinds, occupancy and rent collection in operational real estate has been resilient; testament to the secure and stable income streams that investment in ‘beds’ offers.
In the United States, multifamily rent collection was 95% in April 2021, with occupancy figures remaining steady as a result of eviction moratoria still in place across the country. Grainger, one of the largest BTR operators in the UK, reported that occupancy fell to 89%, but it had retained high levels of rent collection, with 98% paid. In mainland European markets, rental collection rates were lower but still strong at or above 80%, according to Savills Research.
Senior housing has been slightly less resilient, with US senior housing occupancy dropping to 80.7% in the fourth quarter of 2020 as residents and their families opted for alternative care solutions during the pandemic. This is similar to occupancy rates in European countries such as Spain, where occupancy stood at approximately 81% in September 2020, a figure down eight percentage points from 2019. Looking ahead, however, underlying demographic trends mean prospects are still very positive.
With international student mobility particularly impacted by the pandemic, student housing has been the most affected of the operational residential asset classes, though not as much as analysts had initially predicted. Domestic students have partially filled the void left by international students, while in some markets, such as the UK, certain groups of international students have risen to boost total numbers.
In most European markets, occupancy figures have remained north of 80%, although some cities such as Madrid and Dublin have seen occupancy fall to around 50-60%, according to Bonard. Remote study has been shown to work, although it is a poor substitute for on-campus tuition and the holistic student experience. As a result, demand for student housing is likely to recover quickly as restrictions continue to be removed.
One medium term challenge to investors are rent regulations. Rents, rising at a faster pace than incomes, have made rental housing a highly politicised issue. These regulations are becoming more stringent in cities such as Paris, Amsterdam and Copenhagen (see Spotlight: European Multifamily).
Ireland has increased stamp duty to 10% on bulk purchases of 10 or more residential homes. There are also proposals to ring fence up to half of new developments for owner occupiers, but apartments will be exempt, in recognition of the role that institutional investment plays in the delivery of new supply.
Berlin’s rent cap was recently deemed illegal by the German federal courts and rolled back, though the decision was based on who could introduce rent caps rather than the legality of rent caps. Investors in the sector are generally comfortable with modest caps on rent inflation, as these can provide greater certainty of income while reducing perceived risk, and happy tenants are more likely to stay put for longer. However, there is a balance to be struck, and anything that impedes delivery of new stock at scale would be counterproductive.
Read the articles within Report: Global Living – 2021 below.
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