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Capitalise Europe: What’s in store for residential and alternative assets?

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2020 was a year like no other. With dramatic changes to how we went about living our lives, our ways of interacting and operating changed. This has unsurprisingly had a knock on effect on the assets that investors are turning to. In BNP Paribas Real Estate’s recent Capitalise Europe webinar, experts from across the company spoke about just what these changes mean for residential and alternative assets.

Residential proves to be a sturdy choice

For many years, across Europe and the world, people have been migrating from rural to urban areas. This has naturally created a strong demand for residential accommodation in cities and towns. What the pandemic did for this trend was to incite the new need for different types of facilities. For the residential sector, there is now even greater opportunity for developments that incorporate new functionalities and cater to a post-Covid world. 

As Samuel Duah, Head of Real Estate Economics at BNP Paribas Real Estate UK further explains, “Rents have grown over the last decade in Europe due to increases in house prices. Renting now account for about 31% of Europe’s household tenure, up from 29% 10 years ago. Some countries like Germany and the UK are higher as the rental market is more entrenched in their economies. The shift from home owners to tenants has been a key driver of rental growth as they are now at their highest historical values in the majority of key European cities.” 

Indeed, with other asset classes such as retail facing a number of challenges over the past few years, falling volumes actually represent opportunities for other asset classes. 

As Alanna Peach, Senior Associate Director – Alternative Capital Markets at BNP Paribas Real Estate UK illustrates, “In the UK, appetite has changed for institutional investors and international investors looking to invest in the UK. Interest in the BTR (Build-to-Rent) sector was higher than ever in 2020 with c.£4 billion invested. The sector is seen as a secure investment and has maintained secure occupancy, even during lockdown. Creating community in BTR schemes has been helpful in preventing loneliness and anxiety during the pandemic and has been a positive force in attracting more residents to schemes. Good examples of how these types of facilities have been managed include creating online platforms for residents to communicate and organising socially distanced events. This has fostered brand loyalty and we have seen many repeat bookings. There will therefore be more demand for well-operated residential offerings going forward.”

The picture in Spain is similar as Francisco Lopez Ramon, Co-Head Capital Markets at BNP Paribas Real Estate Spain describes, “The residential sector has been attractive for investors who are confident in its stability. The falling prices of second hand homes in Spain last year may provide an opportunity for portfolios”. 

The pandemic has certainly highlighted the increasing dependence on the home and the need for it to be furnished with the right facilities. As Olivier Bokobza Deputy Chief Executive Officer at BNP Paribas Real Estate in charge of Property Development specifies, “During lockdown, people who were at home for long periods of time could see what they liked and what they wanted, which created a huge demand which the market was unable to meet. Covid-19 has proven to be an accelerator for many of our projects. Now is really the time to promote contactless entry to buildings and rooftops and access to outdoor space. At BNP Paribas Real Estate, our new residential buildings give all tenants access to Wi-Fi, promoting greater inclusion and a new customer service.” 
 

Student housing; an asset class with long-term prospects

The pandemic brought international travel to a halt in 2020 and the future for 2021 is still uncertain. Despite this though, the independent UK education charity, UCAS, has reported a growing number of applications in 2020, up 10% from 2019. EU applicants, most likely influenced by Brexit, are 2% lower but from outside the EU, there has been a rise of 10% .  As Samuel Duah points out, “This is of course significant for student housing. These are short-term implications but on the long-term this asset class will likely return as students are attracted to studying abroad. It is on still an upward trend.” 
What’s more, as the way of studying is changing, courses are combining in-person and digital modules. This could mean a rise in the type of developments being offered to students, as current facilities may not be able to cater to this new way of studying. 

The UK is a particularly attractive place for international students to come and study, thanks to the reputation of many of its top quality universities and thanks to the political stability of the UK. As Alanna Peach explains, “The NHS (National Health Service) has encouraged many medical students to see the UK as a safe haven. We are seeing students from India, China and other areas in the Far East, who have said that the NHS was a driving factor for them applying in the UK. Further to that, thanks to the vaccine being produced at Oxford University, an already top international educational facility, more applications for medicine, dentistry and veterinary courses have been received.”

Indeed as a general trend across the UK, the number of students applying to science-based programmes has grown, with students feeling that there is more job security for these subjects. Added to this, many people are keen to get back to campus and these courses offer practical lessons, unlike others such as advertising, which can be carried out online. This growing trend is only going to heighten the need for adapted and attractive student housing options. 
 

BNP-Paribas-Real-Estate-Direction-Committee-olivier-bokobza

During lockdown, people who were at home for long periods of time could see what they liked and what they wanted, which created a huge demand which the market was unable to meet. Covid-19 has proven to be an accelerator for many of our projects.

Olivier Bokobza
Deputy Chief Executive Officer at BNP Paribas Real Estate in charge of Property Development
Europe

An ageing population presents opportunities for healthcare

Samuel Duah points out that, “The growth in the ageing population in Europe offers long-term opportunity for investors looking to get into healthcare. By 2048, 10% of the European population will be over 80 years old . Currently the rate is 5%.” 

As the population ages, across Europe many governments will be unable to support the growing demand for care/nursing home facilities. This is going to mean that the private sector will have to step in and financially support these assets. As Samuel Duah explains, “The investment opportunities will be substantial.”

Nursing homes were significantly affected by the pandemic, but for countries where there is more private provisions, such as Germany, the impact has been less significant. This demonstrates the need for higher quality services, which are going to be offered at higher prices. 

In Spain, assisted living is an asset class which is of particular interest to investors due to the population’s demographics. Francisco Lopez Ramon outlines that, “Spain is one of the most attractive countries to invest in senior living because of the high life expectancy which we can attribute to good climate and good quality of life. In 2020, investment in senior living was around €200 million thanks to the high level of activity.” 

The Covid-19 pandemic certainly shook up the real estate sector across Europe, accelerated some trends and altered how certain assets have come to be seen. What is certain is that there are a number of key opportunities to be had and alterative assets which has proved to be secure and stable are of growing interest. 

See the full webinar here. 

Sources: https://ec.europa.eu/eurostat/statistics-explained/index.php/Ageing_Europe_-_statistics_on_population_developments
 https://www.ucas.com/corporate/news-and-key-documents/news/university-applications-rise-during-lockdown#:~:text=The%20overall%20number%20of%20applicants,compared%20to%2076%2C740%20in%202019