This article was published in our March 2026 magazine

In recent years, there has been a marked increase in the proportion of investment in European property that is being allocated to what Savills calls operational real estate or OpRE - multifamily, single family, affordable housing, purpose built student accommodation (PBSA), co-living and senior housing, as well as hotels and self storage - compared to traditional commercial property sectors.

In 2014, the proportion of European investment flowing to OpRE stood at 25%, but by 2024 it had risen to 37%. Savills’ latest investor survey, covering the period up to the end of the first quarter of 2025 showed that that the trend is continuing, with 38% of investment allocated to OpRE. So, why are the ‘living’ sectors proving so popular? And which subsections are benefiting most?

Clemens Schranz, senior director, lodging funds, Europe, at CapitaLand Investment, certainly thinks that OpRE’s march will continue. “Looking ahead through 2026, Europe’s living sector is set to continue outperforming many traditional real estate asset classes, underpinned by structural drivers such as demographic change, urbanisation and persistent housing undersupply,” he says. “Across major European cities, limited new supply, rising development costs and regulatory constraints continue to support resilient income profiles and long-term investment fundamentals.”

Schranz isn’t alone. Rich Hill, global head of real estate research at Principal Asset Management, says that the returns available in European living sectors are highly attractive. “Returns for the living sector have been really good on a rolling one year basis,” he says. “The European Living Fund Index is up 7.5%. That’s a pretty strong return for Europe. Frankly, it’s a really strong return for commercial real estate globally. So, there are just a lot of eyes on the sector.”

Part of the reason, Hill continues, is that European living sectors still lag far behind the US when it comes to institutionalisation, something that investors think represents a major opportunity. “The housing market in the US started to become institutionalised in the 1990s and certainly in the 2000s became institutionalised,” he says.

“As a rule of thumb, I would say Europe appears to be 10 to 15 years behind in terms of institutionalisation. That’s actually really attractive for many investors because usually when you have a non-institutional property sector, there’s an opportunity to bring it up to modern institutional standards - and usually there is an attractive return when you do that.”

It also has to be said that living sectors are benefiting from a dip in investor confidence elsewhere.  Investors have to allocate capital somewhere, after all. “We’ve obviously seen heavy corrections in real estate values in pretty much all sectors, but I think that the residential sector is perhaps least affected by that, although not entirely immune,” says Vincent Noble, head of real estate debt, Federated Hermes.

“That is just a result of rate rises when inflation had to be fought by the central banks across the board. At the same time, there has been a structural rethink as to what the role of the office is in our lives. In the office market, the values fell so far that it felt a lot riskier as an asset class than it had been in the past. You then start looking at where else you put your money. The difficulty, of course, is that when everybody’s looking at the same space, then value can disappear a little bit as a the result of competition.”

Of course, not all European markets have seen the same level of investment in living sectors. Richard Valentine-Selsey, director and head of European living research at Savills, says that southern European countries are particular attractive. “Spain in particular has seen a lot of activity, especially on the student housing side, in the last 12 months,” he says.

“It’s still seeing significant growth in urban populations and the economy is doing pretty well. Inflation has been low, but also it’s easier to get consent to build in Spain than it is in northern Europe, where inflation spiked really high and construction costs swept up as well. We’re also seeing a bit more interest in Italy, but I would caveat that by saying investors still find it difficult to access Italy given the nature of the Italian legal system and structures.”

Ariadna Nijssen, senior director of investments, Europe, and head of investments, Iberia, at Stoneweg, says that the reason so many investors are taking an interest in both Spain and Italy comes down to demographics. “What’s driving it is definitely the rising demographics, with very high net migration,” she says.

“Then there is also the fact that there’s an urbanisation trend. People are tending towards cities. Spain and Italy are the perfect example of how the outskirts and the countryside are becoming empty. In Spain, we’ve got the fourth largest European country in geography, but it’s basically only dense in the main cities of Madrid, Barcelona and Valencia. The rest of the country has a very, very low density.”

The lack of homes to rent in Italy and Spain is another driver. As Nijssen says, the culture of renting in southern Europe is very different to markets such as Germany, but rising capital values mean that young people especially need good quality homes to rent. “If you compare Spain to northern Europe, we’ve got about 70% of household ownership versus the circa 50/50 that you’ve got in Germany,” she says. “The options are very, very scarce. The affordability issue is definitely on the table with the rise in capital values in the main cities in Italy and Spain.”

Volker Zinkl, head of real estate asset management international at MEAG, agrees. “It’s the same in London - if you have no down payment or rich parents who can give you €300,000, it’s really difficult to buy something, so people have to rent,” he says.

“It’s what we see in Dublin, Netherlands and Spain. In Spain, a lot of people are currently moving there, especially young IT guys because they just need an internet connection. Why should they be in Munich instead of Malaga?”

Valentine-Selsey says that some other countries are seeing some distinct trends. “We are seeing more activity in Denmark and other Nordic countries, where some investors are looking to buy into multifamily with the intention of breaking up units and selling them individually to owner occupiers,” he says. “They’re seeing a greater pricing play between what they can buy a building for compared to what they sell units off for individually.”

One of the most striking findings in Savills’ latest annual OpRE survey was that - for the first time - PBSA had leapfrogged multifamily to become the most popular asset class among investors. Valentine-Selsey says that the reasons are multifaceted. “Part of it is that residential has faced a more challenging time over the last couple of years across Europe, especially when it comes to developing new stock,” he says.

“We’ve had soaring build costs, planning delays and other factors that make it harder to viably develop new residential schemes when you compare that to the greater density you can deliver with student housing. So, if you have an equal size block, you can deliver significantly more PBSA within the same envelope of the building than you can residential. You can drive a greater level of income from the same asset.”

It also has to be said that historically there has been a paucity of PBSA across many major markets across continental Europe compared to the UK. “In the UK, about 34% of students live within purpose built student accommodation,” says Valentine-Selsey. “The average in Europe is about 11%, with most countries below that level. So, there’s obviously more room for growth to deliver student housing and get your returns.”

It also seems that there is a cultural shift going on. In the UK, it used to be that most students chose to study away from their home town or city, but now more and more young people are choosing to live at home in order to minimise the debt they accumulate throughout their degrees. In parts of Europe, the opposite seems to be happening.

“You’re seeing in newer generations of students going to university a greater willingness, especially in southern Europe, for students to live and study outside of their home towns or cities,” says Valentine-Selsey.

As is the case with so many cultural and economic trends, the UK leaving the European Union is also a factor. “Europe has benefited from Brexit in many ways,” Valentine-Selsey adds. “The fact that the UK pulled out of the Erasmus scheme has meant that a greater proportion of European students are staying in the continent of Europe.”

Then there is the fact that universities in continental Europe have improved over the last decade or so. As a result, they are attracting many of the international students that might previously have chosen to go to the US or UK. “They’ve risen up the rankings over the last 10 years, so they’re capturing a greater number of international students as well,” says Valentine-Selsey.

And that has a particular benefit for PBSA investors, developers and operators. “The international student market is a core driver of demand for PBSA because if you’re sending your kids from China or India, you want to know that they’re going to be safe, that they’re in a secure building and that they’re not having to land and work out how they can find a rental flat in a local market,” he says.

So, the arguments in favour of PBSA are many and varied but it may also be the case that sectors such as multifamily or build to rent (BTR) are poised for a come back. “I think we should start to see a bit of recovery with multifamily this year across Europe,” says Valentine-Selsey.

“Finance conditions are improving and people are typically more keen to lend against the living sectors because they see stronger demographic and structural tailwinds than maybe they do with some of the other commercial real estate sectors. Also, with yields having moved out over the last couple of years, we’ve started to get to that point where it makes sense to start developing again.”

With any form of rented residential accommodation, it is always possible that politics could disrupt returns. Young people in particular, after all, are increasingly angry in many successful cities across Europe about the level of rent they are having pay. As a result, some local and national governments are toying with the idea of introducing rent caps if they haven’t done so already.

On the face of it, that could be seen as a red flag for OpRE investors. After all, why would they welcome any move that has the potential to cut or at least hold back the earning potential from their assets? Some investors do indeed object to rent caps for this reason and other, more ideological concerns around free markets. However, Valentine-Selsey says that many more institutional investors are okay with caps - so long as they are consistent and predictable.

“If you have the stability of knowing exactly what it’s going to look like, then you can make a decision,” he says. “Does the return profile work for your investment thesis or not? On the other hand, the uncertainty of not knowing what a rent cap might look like drives a reluctance to invest and develop. In many ways, if it’s done well, then the consistency and stability of income and income growth is great. If you’re a pension fund, as long as those returns match your liability requirements then you’re fine.”

Other political issues may prove more problematic. Immigration, after all, has risen up the agenda across the continent and beyond, particularly in the US, prompting some territories to take steps to get numbers down. Long term, that has the potential to lower demand for housing of all types - most developed countries now have a fertility rate well below the 2.1 required to maintain a population. But in the short term, the impact on foreign student numbers is already being felt.

“Some markets are getting a bit nervous about the level of international student recruitment and the knock on impact that has on housing availability and affordability for domestic residents,” sats Valentine-Selsey. “In the last couple of years, some countries have either floated or introduced caps or restrictions on the number of international students.”

He adds: “You can’t discount the broad global negative view on immigration generally and potential pitfalls that creates for student recruitment, which we’ve already seen in the UK, the US, Canada and Australia - the big four international markets.”

So, the living sectors in Europe are in robust health for a number of important reasons, most of them demographic. But there are no guarantees that will continue. As Benjamin Franklin wrote in 178: “In this world nothing can be said to be certain, except death and taxes.”