MIPIM: Residential sector to become more institutional

Tightening regulations on ESG requirements for buildings will have far-reaching consequences for the residential sector, delegates heard at Real Asset Media’s MIPIM Investment Track: European Living Investment, which took place in Cannes this week.

Real Asset Media’s European Living Investment briefing at MIPIM in Cannes

“The wider living sector will become much more institutional, because private landlords will find it difficult to comply,” said Beverly Kilbride, chief operating officer Europe, LaSalle Investment Management.

Market conditions have also become more difficult and the real extent of the difficulties has not become apparent yet.

“We haven’t seen real distress yet, but it will surely come,” said Nigel Allsop, head of investment strategy research Europe, Greystar. “I think distress will come in the second half of this year.”

As more institutional investors are drawn to the residential sector because of strong demand across Europe, they will also have the capabilities and resources to deal with the challenges of sustainability as well as higher interest rates and less availability of financing.

Higher energy efficiency and emissions standards which now apply to the office sector in more and more European countries will soon apply to the residential sector as well. 

“In the UK many office buildings will not be fit for purpose anymore with the introduction of minimum energy efficiency standards,” said Allsop. “Also in the Netherlands the point scoring system has been changed to give energy efficient products more points, which also leads to cheaper financing, which at current rates is very interesting.”

France and Spain are already looking at imposing these rules on the residential sector.

“Institutional investors have a very acute interest in the full spectrum of residential,” said Kilbride. “This combines with a strong push for ESG and having a positive impact on society.”

Providing more housing, especially if affordable, is the quickest route to having a positive social impact, as across Europe demand far outstrips supply.

“There is a huge lack of affordable housing in Spain, with half a million units needed,” said Henry Gallego, CEO and chairman, Ktesios SOCIMI. “Prices in prime locations are too high, so we only invest in the outskirts of cities or in smaller towns, where rents can be €350-€400 , which is truly affordable”.

There is a lack of housing in the Dutch market as well, which has led Redevco to repurpose retail assets.

“We need one million new homes in the Netherlands, especially affordable houses,” said Vincent Bacas, portfolio director, Redevco. “We have changed our strategy because we are long-term investors and want to have a positive social impact, add value and improve our financial returns at the same time.”

In Groningen, for example, which is a university town that needs more student housing, Redevco has reduced its retail assets on the high street to two storeys and added sustainable residential on top.