How to invest in European ‘living’


Global demographic trends are leading to a whole new world of property investment, which Heitman, a global specialist property-backed manager, calls the “living sector”. Tony Smedley, the firm’s European head of private equity for Europe, visited Australia late last month to talk about the trends.

Heitman has long invested in what the Americans call multi-family dwellings, or what we call a block of apartments, as well as seniors dwellings and student housing, which are all growth areas of the property market. It has both debt and equity strategies.

Smedley’s visit followed one to Japan, Korea and Hong Kong, where he also spoke about “living strategies”. One of the good things about the three main components of “living” – multi family, which can be for rental or purchase, seniors and student – is they are complementary with different risk/return characteristics. Heitman has put them together in Europe for a new fund: the Heitman Living Sector Investment Vehicle for Income and Growth (LIVING).

For Europe, a lot of multi-family dwellings are not only rental properties but also heavily regulated in countries such as Germany, France and the Netherlands. They provide stability within a component of a balanced “living” portfolio, Smedley says. More growth can be obtained through free-market residential in the UK, also Spain, and in Ireland. Student accommodation and senior housing or care, fit within the concept of “solution”.

The fund aims to have a balance across those sub-sectors plus some room for investments in less mature residential markets such as Italy, Austria, Belgium/Luxemburg and the Nordics.

Smedley said on his visit to Sydney that people were looking for new growth engines but it was late in the property cycle, as well as equity and fixed income cycle for that matter. “So, we are more comfortable investing in defensive sectors and are underweight the more cyclical property sub-sectors… Living is supported by long-term investment themes such as urbanisation and demographic change.”

Beau Titchkosky, Heitman managing director, client service and marketing, for Australia and NZ, said that the firm was finding that Australian funds tended to be at their target weights for domestic real estate and some were now looking for international exposures. Real estate which had an income bias was particularly attractive in the current interest rate environment, he said.

Smedley said that living-sector real estate tended to be less affected by political events, such as Brexit. “The long term returns are less volatile and are more sustainable than cyclical market sectors,” he said.

The “living” sector in Europe is estimated to be worth about US$600 billion, which is about 20 per cent of the investable European real estate universe. Heitman, over its history, has invested more than US$3 billion in student and other “living” housing. The firm estimates that its preferred countries of Germany, France, the UK, Ireland and the Netherlands make up probably 80 per cent of the investable universe.

Of its US$60 billion under management across private equity, private debt and public equity globally, A$4.3 billion is managed in 11 Australian and NZ mandates. In turn, Heitman has invested back A$768 million in Australian private equity and public securities.

In other major property sectors, outside the remit of “living”, Smedley said that retail was saturated with supply – “Retailers are in denial; they need to reduce their space” – while office space was probably “balanced” and industrial and logistics real estate was in under-supply.

Many under-used industrial sites are being converted to warehouses, which are going through “a last-mile boom”, with surging liquidity.

– G.B.