European living sector demand to soar up to 2040 - C&W

Demand for a range of housing types is on the rise in line with broader demographic changes and specific agents of change, including affordability, urbanisation, population ageing and greater educational attainment.

Increased demand for private rental accommodation is underpinned by a decline in housing affordability across Europe. House affordability has declined by nearly 30% in the UK over the past decade and by as much as 50% in other European countries, including Portugal, and Ireland. The demand this has created from the so-called ‘generation rent’, combined with a lack of supply in the rental market, has contributed to strong rental growth across European markets. Poland leads the with a 29% increase over the last three years, followed by Portugal (15.2%), the Czech Republic (12.9%), and Spain (9.7%).
 
Shifting demographics and urbanisation are also driving demand in the living sector. Major city populations are expected to grow by between 5 and 15% by 2040 – with London, Edinburgh and Dublin projected to grow by 5.4%, 7.6% and 14.1% respectively – continuing a clear living sector demand driver over the next decade and beyond. Meanwhile, the number of people over 65 is projected to increase by 20-40%, highlighting rising demand for purpose-built healthcare and senior living accommodation.
 
At the same time, Europe has seen an increase in tertiary education levels, from 25% to 32% in the last decade, which has had an impact on the opposite end of the age spectrum. The need for purpose-built student accommodation (PBSA) has grown in conjunction with this increase, as well as the migration of students from Asian and African countries to study in Europe.
 
Joep van de Vorstenbosch, Cushman & Wakefield’s EMEA sector lead for Living, said: 'The living sector is well placed for exceptional growth as changing housing needs, coupled with increased affordability challenges, drive robust demand that outstrips available supply across segments such as private rented, student accommodation, senior living, and affordable housing. This trend is particularly pronounced in the UK, Ireland, and the Benelux markets, where the demand-supply gap remains substantial, with many markets across Europe following suit.'
 
Investment options
Institutional investment volumes in the living sector across Europe have grown exponentially, rising from 6% of total volumes in 2007 to 22% in 2023. The living sector is becoming an increasingly attractive investment opportunity, with 70% of investors citing greater demand and stability of returns as primary draws.
 
The report has identified growing populations and further urbanisation to be the most useful indicators for near-term risk-return trade-offs, while early adopters of senior living accommodation in locations with an ageing population are poised for strong longer-term growth.
 
At present, the UK and Germany are the heavyweight markets of the living sector with other prominent markets including France, Spain, Sweden and the Netherlands although there is clear evidence that the sector is broadening throughout Europe.
 
Almost all countries have seen transaction growth in recent years. Poland and the Czech Republic, for example, have seen significant increases in investment momentum, with living transactions up by 200% and nearly 150% in the 2018-2023 period compared to the previous five-year period.
 
The living sector is also likely to increase its investor appeal further over time given its growing range of investable segments. While student accommodation and build-to-rent segments are leading the pack at present, others including senior living, affordable housing, and co-living, are expected to grow to meet the changing needs of households across Europe.
 
Some green shoots on interest rates but viability still a challenge for developers
A slight easing in financing costs has helped development viability in the living sector although it is highly unlikely interest rates will return to their pandemic-era lows. This, together with the big jump in construction inflation over recent years, means that viability continues to be a challenge for developers.
 
Tom McCabe, head of EMEA Living Research & Insight at Cushman & Wakefield: 'With interest rates and construction costs still elevated, viability remains a near-term hurdle to rapidly expanding housing output. While there is no short-term silver bullet, government support aimed at alleviating developers’ cost challenges, along with more streamlined planning processes, could make a significant difference.'

He added: 'Governments across Europe should exercise caution and restraint when it comes to implementing aggressive regulatory measures on housing markets in response to escalating rental costs over recent years. Our analysis indicates that heavy-handed regulations are more likely to prolong the region's housing crises rather than provide an effective long-term solution. We are looking for a balanced approach that incentivises new development while protecting renters’ interests.'