As millions of Europeans were asked to work from home to help curb COVID-19 infection rates, the long running debate on the optimal work-life balance was finally put to the test. Many questioned how and where they want to live, along with the quality of their living space. If spending more time at home becomes the norm, how well does this space now fit my lifestyle.
The pandemic has changed the course of certain trends, and reinforced others. Rental decisions, whether upsizing or relocating, continue to be driven by individual circumstance. However, a more flexible approach to home working has changed both consumer needs and the timing of certain decisions.
The young and carefree remain young and “house-free”
‘Out of reach’ house prices continue to dissuade younger generations from buying. Put simply, not enough housing has been built. Record low mortgage rates do little to help first-time buyers if they still require a 20% deposit to make repayments affordable. Alongside the extra burden of purchase costs, the barriers to home ownership are getting higher, not lower.
While home ownership is still an aspiration for many, many Europeans are also happy to rent for longer, especially if it better suits their lifestyle. Living in a well-connected, professionally managed apartment with modern amenities, has unsurprisingly become more enticing than buying a ‘shoebox’ flat overlooking Paris’ outer Périphérique.
City population getting younger across Europe
Demographic trends illustrate this clearly. Analysis of European capitals reveal that inner-city suburbs are ‘young’ and getting younger. Paris’ 5th and 11th Arrondissements are most popular with students and young professionals. Those who migrate out to the suburbs are replaced by new generations and new workers, driven by different priorities. In this regard, cities are in a constant state of rejuvenation. They will surely maintain their relevance long after this pandemic is over.
Commuter suburbs are increasingly top of the family wish list
By comparison, Paris’ banlieue are dominated by families and young children. These suburbs are greener, more relaxed and offer family-sized apartments with an abundance of schools.
Despite rising house prices, disposable incomes have only risen so far since the 2008 crisis. Getting more space for less money is increasingly difficult for those unwilling to relocate. For those that do, the average renter can save anywhere between 10% and 40% of monthly rental costs if they can tolerate an extra 30-minute commute.
Services and amenities must match consumer needs
Having access to outdoor space, whether shared or private, can be a decisive factor for tenants. In dense cities like Milan, Paris and Madrid, ensuring sufficient balcony space can often compensate for a lack of public green space. Moving out to the suburbs, investors need to be more inventive. Private garden or roof space, or a communal park within a wider scheme, can make a big difference. Charging facilities should also be actively incorporated into residential designs.
Sustainability is increasingly at the heart of the rental choices
More working from home means more electricity use, more heating and air conditioning. Average household energy bills have already risen by a third since the start of COVID-19. Demand for efficiency in our homes will inevitably rise, in tandem, to help curb these costs. Younger generations have become accustomed to different standards. Sustainability is ingrained in their vocabulary. A decade from now, it will be this group that investors need to please most. Cities are also ‘going green’ off their own back. The EU is targeting 100 carbon neutral cities by 2030. Existing housing stock across Europe is in need of a rapid upgrade to achieve this.
We see the real estate living sectors as the clear strategic winners of the 2020s. More quality, affordable homes are sorely needed to meet living requirements at every stage of the lifecycle, and governments are committed to tackling this urgent social conundrum. However, pressure on public spending represents a growing opportunity for institutions to bridge the gap, driving innovation in both product and customer service. Understanding commuter and migration patterns is an important aspect in building a successful investment strategy in the real estate ‘living’ sectors. This requires careful consideration of the overall ‘housing experience’, from sustainable design that promotes wellbeing, to the level of professional services and amenities. Getting this right means knowing your consumer base. Living space, whether for students, professionals or retirees is nuanced and varies from city to city.
If we do see a lasting shift in working patterns post COVID-19, it will not just be corporate office space that urgently needs to address these requirements. Residential landlords have an equal responsibility.