No place like home:
The case for living sector real estate

Read this article to understand:

• The forces driving demand for living space
• The attractions and risks of the sector
• How we screen and select living sector assets

The living sector – encompassing multi-family, single-family and purpose-built student accommodation, among others – offers a rare combination in private markets: highly predictable income, potential for positive social impact and alignment with the megatrends reshaping the global economy, including climate resilience, energy transition, technology and demographics. Migration is also driving structural demand across all sub-sectors, as people relocate to cities in search of employment, education and community.

Newly built, professionally managed residential stock is increasingly all-electric and energy-efficient, reducing obsolescence risk. Meanwhile, urban centres and economic hubs remain primary destinations for people and capital, sustaining the demand fundamentals that underpin living assets.

When it comes to demographics, three forces are at work concurrently. First, household sizes are declining across Europe, meaning the same population requires more units. Second, across major European markets, affordability constraints are pushing a growing share of the population into rental accommodation for extended periods. In Spain, for example, the average age of first-time buyers is 41 years, one of the highest in Europe.¹ In England and Wales, the house-price-to-earnings ratio is around eight times, putting home ownership beyond the reach of many.²

Meanwhile, urbanisation is concentrating demand into locations where supply is most constrained. Major European cities like Madrid, Berlin and London continue to grow faster than national averages, driven by the persistent pull of employment, high-quality education and established migrant communities.

These structural shifts are supportive of long-term rental growth and attractive total returns.

Why invest in living

The investor case for living rests on four pillars, reinforced by the structural conditions described above.

The first is diversification. The return drivers for residential assets differ materially from those of offices, retail or logistics. Rents in living assets are tied to household income and affordability dynamics, not lease expiry cycles or corporate occupier decisions. This means performance is largely independent of commercial real estate cycles, making living a genuine diversifier within a broader real assets portfolio.

Lower return volatility is the second. Historically, the residential sector has tended to deliver more stable returns than commercial real estate, partly because it is less exposed to business cycles. While office vacancies typically rise in a downturn, people still need somewhere to live.

Potential for income growth is the third pillar, combining durable income characteristics with structural undersupply across most of Europe’s urban areas. Residential rents tend to grow incrementally, with demand for well-located, professionally managed stock proving sticky across cycles and providing a level of inflation protection. Our analysis, supported by academic research, points to a clear link between employment growth and long-term rental growth, reinforcing the case for focusing on economically dynamic urban locations.

Whether in the UK, where new home completions are running around 40 per cent behind the government’s target,³ or in Germany, where the purpose-built student accommodation (PBSA) sector faces a deficit of over 520,000 beds,⁴ supply in key European residential markets is often inadequate. Crucially, institutional capital is part of the solution helping to fund new homes that would not otherwise be built, addressing undersupply rather than simply profiting from it.

Finally, there is liquidity optionality. A residential portfolio can, in principle, be disaggregated asset by asset, house by house or flat by flat. While such a process would be time-consuming, it offers an exit route absent from single-lot commercial property investments.

Risks and mitigants

A credible living sector investment approach should seek to mitigate the risks involved.

Regulatory and political risk is perhaps most visible. Rent controls in Spain’s Catalonia region, evolving tenancy legislation in the Netherlands and Ireland, and the uncertainty created by Spain's 2023 Housing Act highlight that the policy environment can shift quickly. Mitigation lies in rigorous policy analysis, close relationships with local partners who understand regulatory dynamics on the ground, and disciplined underwriting that does not assume optimistic outcomes.

Supply and development risk is another consideration. Rising construction costs, labour shortages and planning delays create real execution risk. Forward-funding structures, fixed-price contracts and experienced delivery partners are the primary mitigants.

Income and affordability risk reflects the tension at the heart of the living sector: the same inflation that supports nominal rent growth can erode renter disposable income, increasing voids and churn. A balanced approach is needed to ensure continual occupation with rents kept at an affordable level. Investors should focus on markets with strong demographic and employment fundamentals, where job creation and population growth support the ability of renters to make payments.

Operational and management risk is the fourth, with demand for appropriate amenities in focus across most markets. Part of this risk relates to the high intensity nature of operations, dealing directly with private individuals and the cultural dynamics of each market. For instance, PBSA in Spain requires a canteen, which is not required in Germany. Meanwhile, in the multi-family sector, the general standard of amenities is higher in Spain and the UK compared to Sweden and Germany, where expectations are lower.

Real estate remains a local asset defined inherently by its location; those with a greater understanding of local dynamics should have greater potential to improve performance. Strong alignment of interests between investors and operators, combined with on-the-ground local expertise and the economies of scale that come with portfolio depth, are the most effective risk mitigants.

How we screen living markets

Identifying attractive living markets requires a repeatable, data-driven framework, applied consistently across geographies and sub-sectors.

Future income growth potential is important in any assessment. We focus on locations where population and employment growth are most likely, as this is where rental income growth tends to follow.

Supply imbalance and affordability metrics such as house-price-to-income and rent-to-income ratios can help identify markets where ownership constraints are deepest and rental demand is likely to prove durable. We also assess structural supply constraints – restrictive planning frameworks, greenbelt policy, geographic barriers (such as Barcelona’s natural physical boundaries), and the track record of housing delivery against targets.

Where rent controls exist, we consider their potential unintended consequences carefully: evidence suggests they tend to suppress new supply over time, deepening affordability pressures rather than resolving them. That said, well-designed policies that exempt new builds or allow rent resets between tenancies can support access to affordable housing while still attracting investment from specific sources of capital.

Institutionalisation potential is another lens we apply. This assesses whether a market is already mature, or whether there is an early mover opportunity to be captured. In Spain, approximately 90 per cent of rental properties are owned by private individuals,⁵ illustrating both the fragmented nature of the market and the opportunity for professional operators to establish platforms at scale. German PBSA presents a comparable dynamic, with less than a third of beds privately managed.⁶

Finally, scale matters: strategies ideally should have national, not just niche sub-market, appeal, with investment targeted at the top quartile of locations. These can be identified through proprietary location and asset screening tools that assess demographics, economics and residential market conditions. Crucially, the analysis operates at both the city level – ranking markets by their overall attractiveness – and at the sub-market and asset level, ensuring local insight informs every investment decision.

Our four conviction areas

Across Europe, most institutional private capital platforms are building housing, not aggregating older standing units. In the process, they are helping to address supply issues seen in many markets. 

UK single family housing

England's single-family housing (SFH) sector has reached an inflection point. Decades of underbuilding have left the country with a structural housing shortfall: in 2024, completions fell more than 150,000 units short of the government's annual target.⁷

Simultaneously, buy-to-let owners are exiting the market en masse, with an estimated 560,000 homes lost from the private rented sector between 2016 and 2025.⁸

Institutional capital is stepping in to replace that supply with purpose-built, professionally managed homes. In 2025, single family housing accounted for 59 per cent of a record £5.3 billion in UK build-to-rent investment.⁹

Families – who make up around 41 per cent of SFH tenants¹⁰ – typically value long tenure, proximity to good schools and local amenities, driving the low vacancy and stable income profile that characterises the strategy. Total returns are driven primarily by income and rental growth. We see the strongest opportunities in the Greater South-East, including commuter locations such as Cambridge and Kent, alongside select higher-value urban catchments in the Midlands and Trans-Pennine corridor.

German PBSA

Germany's PBSA sector combines a 2.9 million-strong student population with chronic undersupply and a nascent institutional investor base. Public PBSA provision had fallen from 14 per cent of the student housing stock in 1992 to under ten per cent by 2023, creating a deficit of approximately 520,000 beds that is projected to widen to 650,000 by 2029-30.¹¹ On top of this, we believe that the quality of existing stock falls short of meeting today’s requirements, making the situation even more acute at the top end.  

Occupancy across most cities remains high, and rental growth has consistently outpaced inflation.¹² The sector trades at a yield premium of 100-110 basis points above multi-family housing, reflecting its operational complexity, although that spread is likely to compress as the sector matures and becomes more institutional.¹³

Germany's tuition-free university model and expanding portfolio of English-taught programmes support sustained international demand. Berlin and Munich are the standout markets: Berlin benefits from world-class universities, strong international student appeal and a 95 per cent occupancy rate, while Munich combines Germany’s strongest economy with a chronic shortage of student beds and one of the tightest residential markets in Europe.

Spanish multi-family

Spain's build-to-rent market remains nascent but structurally compelling. Household formation outpaced housing construction by approximately half a million units between 2008 and 2021,¹⁴ and we estimate excess demand for rental accommodation is around 2.5 million households.

Constrained supply contributed to average rental growth of around ten per cent in 2025, with Madrid and Barcelona both posting increases of between five and eight per cent.¹⁵ Only 16 per cent of Spain's total housing stock is rented,¹⁶ reflecting the historically fragmented, privately owned nature of the market and limited institutional provision to date.

Our approach centres on partnering with experienced local operators via a vertically integrated platform spanning site sourcing, development and asset management. Madrid is our primary focus, with the city supported by strong economic and demographic fundamentals and a favourable investment environment. Catalonia’s rental regulations have constrained development opportunities in Barcelona, although we maintain exposure to selected tier-two locations such as Valencia and Palma de Mallorca, where supply constraints and tourism-driven demand support rental growth.

Urban family housing

Urban family housing (UFH) is the newest of our four conviction areas. Whereas SFH targets suburban households in the private market, UFH targets urban households (also in the private market). It is designed to provide an affordable, aspirational solution for moderate-income households, typically those who do not qualify for social housing but face affordability constraints.

The critical structural innovation is the land model. A feeder vehicle takes early planning risk and then passes consented sites to the development vehicle. Working alongside local authorities, sites are unlocked that might otherwise be commercially unviable. Once planning is secured, sites are transferred to the main vehicle, which develops quality homes in communities where housing is most needed, as well as providing income and capital returns to investors.

We target edge-of-centre or vacant sites in towns and cities with strong employment fundamentals. These regions are frequently marked by underinvestment and a lack of professionally managed, high-quality rental housing.

We are focusing on large urban economies outside London, such as Manchester, Liverpool and Southampton, with an emphasis on areas subject to wider regeneration programmes. This distinguishes UFH from SFH, which typically targets larger greenfield suburban sites.

This strategy offers the potential to address local needs and deliver positive, place-based social outcomes through improved housing standards and investment in underserved locations. The approach is also scalable and aligned with the objectives of our parent company and the National Housing Bank. 

Conviction over consensus

The investment case for living does not depend on a favourable macro environment. It depends on what is already in place: a deficit of good-quality rental housing, a demographic shift pushing more households into rental accommodation for longer, and a gap between what institutional operators can deliver and what private owners have historically provided.

Through disciplined selection, rigorous underwriting and operational expertise to manage assets at the standard tenants expect, a living sector strategy offers investors durable income, meaningful diversification and the opportunity to put capital to work where need is demonstrably high. The demand is structural. So is the opportunity.