Knight Frank identifies PBSA as top real estate investment target

Knight Frank’s latest investor survey unveils a strong interest in investment in residential living sectors, with £64bn of new capital earmarked for deployment over the next five years.

The annual European Living Sectors Investor Survey, which polled 55 leading investors managing over €98bn in assets, reveals a picture of optimism tempered by significant challenges.

Purpose-built student accommodation (PBSA) emerges as the most attractive investment prospect, closely followed by multifamily housing.

Notably, all surveyed investors plan to increase their exposure to living sectors, with 41% considering substantial increases of between 40% and 100% of their current allocations.

These findings come amid sharp rises in rents across many European cities and growing pressure for rent controls.

Environmental, Social and Governance (ESG) considerations are increasingly driving investment decisions.

A striking 69% of respondents cited investor priorities as paramount in shaping their ESG approach, outweighing both regulatory changes and tenant demands.

“There is a real desire to inject and reinvigorate competitiveness into the European economy – and Living Sectors will play a significant role in shifting the dial across the continent,” said Katie O'Neill from Knight Frank's Global Living Sectors research team.

London, Madrid, and Berlin top investors' location preferences, with Dublin, Milan, Amsterdam, and Barcelona also featuring prominently.

However, the sector is not without its challenges. Potential new regulation emerged as the most significant short-term operational hurdle, with 62% of respondents expressing concerns. Affordability remains a close second worry.

The debt market shows promising signs of recovery, with 60% of respondents expecting increased debt requirements in the coming year – a significant leap from just 20% in the previous survey.

Stuart Osborn, Head of European Living Sectors Transactions at Knight Frank, offered a nuanced perspective:

“The living sectors continue to demonstrate their appeal to institutional investors, with significant capital waiting to be deployed. As we continue to see further European Central Bank rate cuts, we expect activity to pick up significantly in the coming months."

Lisa Attenborough, Head of Debt Advisory, added optimism to the outlook:

“The shift in debt market sentiment is a positive indicator for the recovery of investment activity in the living sectors. As financing costs become more attractive, we expect to see a pickup in transactional volumes in the next 12 months.”

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