Residential Sector Will Command More Global Property Investments

JLL, a global property consultant, claims that a third of all global real estate direct investment will be in the residential sector. It was 14% in 2010, and it increased to 25% in 2020. The most significant increases may be felt in Europe and the Asia Pacific. So, here’s what you must understand about this shift in global property investments.

Residential Sector Will Command More Global Property Investments
As the investment in the residential sector increases, there will be a reduction in the volume of investments in commercial real estate, which includes assets such as offices. Thus, the portfolios will diversify further, and the capital allocations will shift in this decade.

What the Growth Opportunities in Living Report by JLL Had to Say
The Growth Opportunities in Living report by JLL included an analysis that showed that capital flows into the residential sector had seen a steady increase during the last 5 years. Most of the capital flows were in build-to-rent property and multifamily segments of the real estate markets in different parts of the world. $200 bn in global capital was invested in the residential sector in 2020. Moreover, increasing urbanization, more desire for investment, and other factors are likely to increase the global property investments in this decade.

The JLL has also discussed that residential sector opportunities can depend on demographic trends, local regulations, and economic fundamentals. All of these factors have led to the development of the residential sectors in different parts of the world, including the United Kingdom, the United States, the Netherlands, and Germany.

JLL analysis also showed that the risk and return potential are not distributed evenly. Thus, markets with imbalances in severe supply and demand offer the most significant opportunity for sector growth and permeation. However, this also means that investors will have to deal with more challenges than mature markets will.

In the case of the US, consistent returns and leasing performance of the residential sector enabled it to become the most liquid commercial sector in real estate. Thus, it now challenges the position of the office sector globally with respect to investments. The compounded annual investment volumes grew to 17%in the previous economic cycle. This was significantly greater than retail and office.

Recently, there has been an increase in the on-market product competition due to diversifying capital flows. Thus, it has pushed investors into residential markets that were previously nascent—particularly areas in Europe and the Asia Pacific.

International real estate
China, home to 1.4 billion people, is the world’s most valuable residential market and now accounts for 30% of total global residential value.  Total residential value here grew by 13% in 2020, driven by strong price growth coupled with the delivery of new supply.

The US follows, accounting for 11% of world residential value, while just ten countries – China, US, Japan, Germany, UK, France, South Korea, Canada, Italy and Australia – make up 75% of the global residential total.

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