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As investors we need to find other angles in order to access the residential market

Joe Persechino
Joe Persechino
Head of Residential and Student Accommodation, AXA IM - Real Assets

“Many students have a real sense of purpose now, so living close to, learning from and  helping older people could appeal to their sense of community.”

What is AXA IM – Real Assets’ involvement with the residential and student sectors? 

We have close to EUR 11bn of residential assets under management. 

The vast majority is in traditional residential apartment blocks such as `Haussmanian’ style – large two, three and four bed apartments in city centre locations in continental Europe, including many in some of Paris’ most highly sought-after arrondissements. 

We are actively looking at opportunities in the build-to-rent space. Over recent years, we have witnessed a huge influx of international capital increasing their exposure in this asset class making it a highly competitive market. 

How do you see market conditions for BtR right now? 

If anything, it’s too hot. In London we are seeing yields quoted as low as 3.25% for PRS assets, which is unsustainable from our point of view. 

In many major European cities, there are high land values to contend with, coupled with construction costs  rising on average 5% each year. Development in London is more challenging still given the requirement for 35% affordable homes as per the draft London plan. We think this means many new schemes do not stack up from a return perspective.

As investors we need to find other angles in order to access the residential market. AXA IM – Real Assets is exploring the affordability sub-sector and the potential opportunities it may bring. Our focus is not predicated on building high-end stock which serves a small segment of the market. We take a long-term view to investment and seek to spread our risk across a balanced portfolio.

What trends are you seeing in student accommodation?

We manage EUR 600m of student accommodation, including assets in Scotland, Germany, the United States and an investment in the number one provider in Spain.

We are seeing huge numbers of international students still arriving in the United Kingdom, not solely from China, but also Malaysia, Vietnam and India. It is not just the upper classes who are paying to send their children for a  western education, but increasingly the middle classes too, who are more price sensitive. 

The student accommodation sector needs to cater for a variety of budgets, from traditional ‘cluster’ flats with shared facilities, to studios with en-suite bathrooms and kitchenettes. A zone 1 studio in London can command anything from GBP 350 to over GBP 700 per week. 

Over recent years, rooms have become more compact, but there are variances in legislation in different countries on minimum sizes. In the UK a student studio can be 15 sqm, but in Germany it will be 22 sqm or more. 

What living trends are you seeing across Europe?

The 2018 World Cities Report by the UN forecasts that by 2030, 60% of people will live in cities and I read recently that major cities will drive 80% of the GDP for their respective countries. The preference for urban living won’t just need to cater for young professionals, but all age ranges. At the same time, home ownership rates generally continue to fall leading to more demand for rental accommodation. 

As an example, in Germany, we are seeing a trend of people aged 55 and older selling their homes and moving back into city centre locations. People are staying healthier for longer and want to access amenities and leisure activities that allow them to make the most of their later years. Inter-generational living is also a concept that interests us. 

Many students have a real sense of purpose now, so living close to, learning from and helping older people could appeal to their sense of community.

For further insights please download our Urban Being: The Future of City Living Real Estate report.

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