The hotelisation of real estate has become a well discussed phenomenon in recent years as different asset class subsectors have realised that by borrowing certain characteristics from hospitality they can make their offerings more attractive to consumers and in many cases generate a bigger return.
Think about the student accommodation or senior living sectors: both have seen a remarkable transformation over the past decade with developers, investors and operators professionalising standards.
The broader “living” living segment has seen a dramatic rise in interest across Europe thanks to a few of key drivers:
- Customers are now much more sophisticated in their requirements
- Investors are diversifying away from the traditional build-to-rent (BTR) sector as well as from retail and office, which are both undergoing significant changes
Speaking at the recent Urban Living Festival in London, Martin Zdravkov, lead portfolio manager at German asset management company DWS, said the lack of attractive alternatives was one of the pushes towards the living sector, as well as its necessity.
“You end up realising that having a roof over the [consumers’] head is not a discretionary decision,” he said.
Speaking as part of the same discussion, Celia Harrison, investment manager at Bridges Fund Management, said that as operators in the sector grow and mature it becomes a lot easier for institutional investors to buy into that market.
She added that one of the drivers of the development work her company does in BTR, student accommodation and senior living is the “chronic lack of housing supply in the UK”.
Part of this is down to demographics, we have an aging population with not enough homes, but successive governments have also failed to build enough houses.
“These demand drivers aren’t going to go away,” she said, while adding that at the same time you’ve got “more sophisticated investors and ore sophisticated operators.”
For an asset manager like Legal and General Investment Management (LGIM), the attractiveness of the living subsector comes down to two things:
- The ability to generate long-term stable returns to pay pensioners
- Delivering a social good
“We can take those hundreds of billions that is tied up in pension funds and build infrastructure,” said Dan Batterton, head of residential at LGIM Real Assets, speaking on the same panel.
In many western countries during the pandemic there was a population flight from the cities to the suburbs and countryside. While some of this was permanent, many returned to their urban neighbourhoods. Cities still drive economies with Oxford Economics estimating that urban areas produced more than 80% of global GDP today, a figure that is expected to rise to 90% by 2030.
Cities though are having to change, and operational real estate can play a part as the 2021 Global Living report from Savills noted.
“Mixed uses benefit all uses. Investors, targeting long-term income streams, have a vested interest to ensure the wider environment they create is high-quality and well integrated into the wider community. Tenants are more likely to stay longer and pay a premium for this quality of experience,” the authors said.
“Mono-use retail schemes, particularly impacted by the pandemic, are ripe for repurposing and reimagining. Residential will be central to this, helping to build viable, mixed-use places. To be truly diverse and sustainable they will need to attract a breadth of ages, incomes and demographics. This presents an opportunity for everything from student to senior housing, and critically, at a range of price points.”