Credit: FreepikThe European Living Sector: Housing Crisis, Sector Hybridisation, and Residential Regulation
Addressing major trends and challenges in Europe’s living sector, with exclusive perspectives from Colonies, DeA Capital, GSA Group, Heimstadem, and Periskop
February 27, 2026Real Estate
Written by:Helen Richards
Key Takeaways
- Residential has overtaken office as the primary investment sector in European real estate for two years running.
- Success in modern living segments, such as co-living and PBSA, requires active management and an operating business mindset rather than a passive, fixed-income approach.
- Investors are able to work with rigid regulation in the residential sector, but uncertainty and constant policy changes are a major barrier to long-term capital allocation.
The living sector has officially cemented its position as the largest investment sector in European real estate.
For decades, the office sector was the undisputed king. However, a combination of post-pandemic structural shifts and a dire shortage of housing across the continent has pushed the living sector into the top spot for the second consecutive year.
We tapped into the expert minds of those at the forefront of the industry, asking where the sector is heading amid a fierce regulatory landscape, a desperate supply shortage, and ever-evolving tenant demand reflecting modern, mobile lifestyles.
While urbanisation and evolving urban lifestyles maintain soaring levels of demand, the volume of new housing deliveries has plummeted to historically low levels.
The geography of this crisis spans the continent's most vital hubs, with the demand for housing far exceeding supply in Amsterdam, Berlin, Dublin, Paris, Madrid, Lisbon, Warsaw, and more. However, the bottlenecks preventing a solution vary significantly by city.
As Alexander Fröse, Managing Partner at international real estate investment specialist, Periskop, describes: “In Berlin and Amsterdam, construction delays and rising costs limit new supply. In Paris and Madrid, the shortage of land ready for development slows progress. Warsaw, meanwhile, is growing fast but struggles to scale sustainable projects efficiently.”
This persistent shortage has fundamentally altered how people move - or rather, how they don't move. François Roth, Co-Founder of Colonies, a leading European managed residential operator, notes that in a number of French urban centres this supply-demand dynamic has led to a severe “rigidification” of the residential market.
As households refrain from vacating their current homes, the residential ladder has become completely blocked, further exacerbating the competition for the few units available. In cities like Paris, a single studio or mid-sized apartment can generate "hundreds of applications," explains François.
This desperation has birthed circumvention behaviours such as tenants offering to prepay several months of rent in advance or turning to short-term, unstable living solutions. “These behaviours primarily reflect a market that has become dysfunctional,” he asserts.
With professionals now changing jobs every 2.7 years on average and homeownership becoming increasingly elusive, the demand has shifted towards turnkey and flexible offerings. “The boundaries between student housing, co-living, and short- or mid-term stays have become increasingly blurred, as lifestyles have evolved significantly.”
Amid fast-shifting trends, rather than building for a single, narrow demographic, François describes Colonies’ value proposition of asset reversibility, with assets “designed to remain relevant over time by adapting to a wide range of needs, significantly reducing the risk of obsolescence.”
While the profiles of tenants may be diverse, core expectations in the sector are highly convergent: central and well-connected locations; affordable rents and high-quality, bright housing; and attractive shared spaces with openness to the outdoors.
“Living is operational real estate,” she adds. Performance is no longer a passive byproduct of ownership, and in this new era, success is dictated by "active asset management, disciplined ESG execution, regulatory expertise, and strong local presence. Income stability is not automatic; it is the result of continuous operational control and informed decision-making.”
This shift is particularly evident in the rise of managed segments such as serviced apartments and co-living. While these sectors offer significant opportunities - often because they operate outside classic rent regulation - they require a completely different mindset.
These products sit in the grey area between residential and hospitality, explains Lisa, cautioning investors: "you are underwriting an operating business, not just a building."
“Today, for stabilised assets, the cap rate spread between traditional residential and products such as PBSA or co-living generally ranges between 100 and 150 basis points,” describes François. “However, we are observing a gradual convergence downward, reflecting a better understanding of the asset class and its increasing maturity.”
The residual premium is largely attributed to market liquidity. Traditional residential assets continue to demonstrate a considerably greater market liquidity, as the increased specialisation associated with managed residential continues to constrain liquidity.
“I do not believe there will be a full convergence of capitalisation rates between traditional residential and managed residential,” says François. “There will always be a slight premium linked to the operational dimension and the product’s specialisation. However, the fact that the spread has narrowed significantly demonstrates that co-living and PBSA are now recognised as structured asset classes with a proven track record and solid fundamentals.”
John Jacobs, Global Head of Capital Markets at GSA Group, a global leader in student housing, attributes the resilience of the sector to the limited correlation with economic cycles, “benefitting from countercyclical student demand [and] predictable annual leasing cycles.”
Unlike the fragmented private student rental market, PBSA offers a more professionalised operating model, describes John, while “the ability to reset rents on an annual basis delivers strong inflation protection.” This resilience combined with the sector’s proven track record continues to attract global capital.
The sector's strength is further fuelled by a significant undersupply of product in most continental European countries. Pierre Julin, Managing Director at DeA Capital, active in PBSA across France and Spain, describes a demand dynamic bolstered by a globalised academic landscape where the best European higher education institutions are increasingly competing for international students.
“In addition, [the] churn rate remains high due to the mobility implied by most of the academic programmes,” Pierre explains. This competition and high churn, paired with a growing number of students, has resulted in continued strong occupancy throughout major European academic hubs.
“We see opportunities across all our markets,” says John Jacobs, “but […] the strongest opportunities lie in Germany, Spain, and Italy. These are more nascent markets, where structural undersupply is most acute and rising international student numbers are driving favourable conditions for those who have the development, investment, and operational capabilities to deliver new beds at scale.”
“Demand grows steadily and predictably, irrespective of interest rate movements or market sentiment. That makes the sector comparatively resilient - it’s one of the few segments where timing plays a smaller role than long-term need.”
However, the shift is not merely numerical; it is cultural. “The market is shifting from purely care-driven facilities toward more flexible, community-oriented living concepts that combine independence with access to professional services. Senior living is evolving from a health-focused necessity into a lifestyle-driven choice.”
This trend is not unique to Germany, as nations across Europe, North America, and Asia are "rethinking how to age well, and institutional capital is starting to view this sector as an essential, long-term investment theme rather than a niche,” explains Alexander.
For investors, the current landscape offers an attractive opportunity to enter the segment counter-cyclically. Alexander describes how particular value is found in the repositioning of existing assets. Transforming outdated properties into modern senior living environments is often more efficient, while also offering the advantage of immediate cash flow generation, avoiding lengthy pre-opening phases or permitting delays.
“Regulation creates a clear framework, sets quality standards, prevents excesses, and establishes barriers to entry that protect the market from opportunistic behaviour,” argues Colonie’s François Roth. “It helps professionalise the sector and ensures a minimum level of quality for residents.”
A transparent and rule-based framework is essential in such a complex sector, and this “high barrier to entry” is even noted as a structural advantage to those who are able to successfully navigate it.
However, “the issue is not regulation per se - it is unpredictability and constant change,” argues Heimstaden’s Lisa Strohbücker. “Long-term investors can manage regulation - if it is predictable. Persistent uncertainty, however, increases required returns and can reduce capital allocation to the sector.”
François echoes this view: “Investors can factor high property taxes, rent control, or specific constraints into their financial models. However, rapid, disorderly, or poorly coordinated changes significantly undermine the ability to plan over the long term.”
“Residential real estate is built on long-term investment horizons. What investors need is not an absence of rules, but a stable and predictable framework,” he affirms.
The variation in legal classification complicates the matter further, namely “the definition of housing, the distinction between long-, medium-, and short-term stays, the boundary between civil and commercial activity, and the regulation of associated services. The same product may therefore be considered traditional residential in one city and a commercial activity in another, with major regulatory and fiscal consequences,” explains François.
The irony: tenant needs and usage patterns of residential assets are strikingly similar across European metropolitan areas, as flexibility, connectivity, quality spaces, and central locations remain fundamental characteristics of living assets.
But is there a point where regulation turns an asset uninvestable?
“There is a threshold,” warns Lisa. “If regulation structurally prevents income from covering OpEx, CapEx, and compliance over the long term, the investment case no longer works.”
One thing is clear, the vast majority of Europe’s major cities are in stark need of more housing, and if regulatory intervention continues to disincentivise new production, the supply gap will only worsen.
As DeA Capital’s Pierre Julin describes, “households are fragmenting; more of us are living for longer; everyone is feeling the pinch from higher prices. The lack of housing across Europe keeps heightening while the rise in interest rates has significantly impacted the private market. In this context answering the need for homes that people can actually afford has become essential.”
The fundamental driver remains this critical need for homes that reflect modern, mobile lifestyles. For those who can execute with local precision, the sector remains a cornerstone of long-term institutional value.
Thank you to our esteemed GRI Institute members for their valuable contributions to this article: Alexander Fröse (Periskop), François Roth (Colonies), John Jacobs (GSA Group), Lisa Strohbücker (Heimstaden), and Pierre Julin (DEA Capital).
For decades, the office sector was the undisputed king. However, a combination of post-pandemic structural shifts and a dire shortage of housing across the continent has pushed the living sector into the top spot for the second consecutive year.
We tapped into the expert minds of those at the forefront of the industry, asking where the sector is heading amid a fierce regulatory landscape, a desperate supply shortage, and ever-evolving tenant demand reflecting modern, mobile lifestyles.
The Crisis
Across Europe’s major urban centres, the residential landscape is defined by a mounting, systemic tension. What we are witnessing is not a temporary dip or a cyclical shock, but a deep housing crisis born from a structural lack of supply.While urbanisation and evolving urban lifestyles maintain soaring levels of demand, the volume of new housing deliveries has plummeted to historically low levels.
The geography of this crisis spans the continent's most vital hubs, with the demand for housing far exceeding supply in Amsterdam, Berlin, Dublin, Paris, Madrid, Lisbon, Warsaw, and more. However, the bottlenecks preventing a solution vary significantly by city.
As Alexander Fröse, Managing Partner at international real estate investment specialist, Periskop, describes: “In Berlin and Amsterdam, construction delays and rising costs limit new supply. In Paris and Madrid, the shortage of land ready for development slows progress. Warsaw, meanwhile, is growing fast but struggles to scale sustainable projects efficiently.”
This persistent shortage has fundamentally altered how people move - or rather, how they don't move. François Roth, Co-Founder of Colonies, a leading European managed residential operator, notes that in a number of French urban centres this supply-demand dynamic has led to a severe “rigidification” of the residential market.
As households refrain from vacating their current homes, the residential ladder has become completely blocked, further exacerbating the competition for the few units available. In cities like Paris, a single studio or mid-sized apartment can generate "hundreds of applications," explains François.
This desperation has birthed circumvention behaviours such as tenants offering to prepay several months of rent in advance or turning to short-term, unstable living solutions. “These behaviours primarily reflect a market that has become dysfunctional,” he asserts.
François Roth, Co-Founder of Colonies
New Living Dynamic
Parallel to this crisis is a fundamental change in how people live. François describes how “residential paths have become much more mobile, fragmented, and uncertain.”With professionals now changing jobs every 2.7 years on average and homeownership becoming increasingly elusive, the demand has shifted towards turnkey and flexible offerings. “The boundaries between student housing, co-living, and short- or mid-term stays have become increasingly blurred, as lifestyles have evolved significantly.”
Amid fast-shifting trends, rather than building for a single, narrow demographic, François describes Colonies’ value proposition of asset reversibility, with assets “designed to remain relevant over time by adapting to a wide range of needs, significantly reducing the risk of obsolescence.”
While the profiles of tenants may be diverse, core expectations in the sector are highly convergent: central and well-connected locations; affordable rents and high-quality, bright housing; and attractive shared spaces with openness to the outdoors.
Operational Awakening
“Residential was long perceived as a fixed-income substitute - stable, defensive, almost bond-like. That view underestimated the operational intensity of the asset class,” explains Lisa Strohbücker, Head of Investment for Germany at Heimstaden, a leading European residential real estate company.“Living is operational real estate,” she adds. Performance is no longer a passive byproduct of ownership, and in this new era, success is dictated by "active asset management, disciplined ESG execution, regulatory expertise, and strong local presence. Income stability is not automatic; it is the result of continuous operational control and informed decision-making.”
This shift is particularly evident in the rise of managed segments such as serviced apartments and co-living. While these sectors offer significant opportunities - often because they operate outside classic rent regulation - they require a completely different mindset.
These products sit in the grey area between residential and hospitality, explains Lisa, cautioning investors: "you are underwriting an operating business, not just a building."
Lisa Strohbücker, Head of Investment for Germany at Heimstaden
Risk Premium
Investors are increasingly chasing better cap rate compression through operational real estate, but a gap remains between traditional and managed products. While the risk premium for these products may have dropped significantly over the last decade, it has not disappeared.“Today, for stabilised assets, the cap rate spread between traditional residential and products such as PBSA or co-living generally ranges between 100 and 150 basis points,” describes François. “However, we are observing a gradual convergence downward, reflecting a better understanding of the asset class and its increasing maturity.”
The residual premium is largely attributed to market liquidity. Traditional residential assets continue to demonstrate a considerably greater market liquidity, as the increased specialisation associated with managed residential continues to constrain liquidity.
“I do not believe there will be a full convergence of capitalisation rates between traditional residential and managed residential,” says François. “There will always be a slight premium linked to the operational dimension and the product’s specialisation. However, the fact that the spread has narrowed significantly demonstrates that co-living and PBSA are now recognised as structured asset classes with a proven track record and solid fundamentals.”
Sub-Sector Resilience: PBSA and Senior Living
Purpose-Built Student Accommodation (PBSA)
PBSA has emerged as a standout performer, distinguished by its unique ability to thrive regardless of broader economic volatility. As institutional capital seeks refuge from inflationary pressures, the sector has arisen as one of the most resilient and defensive asset classes available today.John Jacobs, Global Head of Capital Markets at GSA Group, a global leader in student housing, attributes the resilience of the sector to the limited correlation with economic cycles, “benefitting from countercyclical student demand [and] predictable annual leasing cycles.”
Unlike the fragmented private student rental market, PBSA offers a more professionalised operating model, describes John, while “the ability to reset rents on an annual basis delivers strong inflation protection.” This resilience combined with the sector’s proven track record continues to attract global capital.
John Jacobs, Global Head of Capital Markets at GSA Group
The sector's strength is further fuelled by a significant undersupply of product in most continental European countries. Pierre Julin, Managing Director at DeA Capital, active in PBSA across France and Spain, describes a demand dynamic bolstered by a globalised academic landscape where the best European higher education institutions are increasingly competing for international students.
“In addition, [the] churn rate remains high due to the mobility implied by most of the academic programmes,” Pierre explains. This competition and high churn, paired with a growing number of students, has resulted in continued strong occupancy throughout major European academic hubs.
Mapping the Opportunity
While the sector is well-established in the UK, global capital is now pivoting towards less mature markets where the supply-demand gap is most extreme.“We see opportunities across all our markets,” says John Jacobs, “but […] the strongest opportunities lie in Germany, Spain, and Italy. These are more nascent markets, where structural undersupply is most acute and rising international student numbers are driving favourable conditions for those who have the development, investment, and operational capabilities to deliver new beds at scale.”
Pierre Julin, Managing Director at DeA Capital
Senior Living
The senior and assisted living sector is carving out a distinct path defined by long-term necessity rather than market sentiment. According to Periskop’s Alexander Fröse, this sector "behaves differently from traditional residential markets because it is driven by demographics rather than economic cycles.”“Demand grows steadily and predictably, irrespective of interest rate movements or market sentiment. That makes the sector comparatively resilient - it’s one of the few segments where timing plays a smaller role than long-term need.”
Structural and Cultural Shift
The demand for senior living is rising dramatically. By 2030, Germany alone is expected to face a shortage of more than 300,000 units as it manages one of the world's oldest populations, informs Alexander.However, the shift is not merely numerical; it is cultural. “The market is shifting from purely care-driven facilities toward more flexible, community-oriented living concepts that combine independence with access to professional services. Senior living is evolving from a health-focused necessity into a lifestyle-driven choice.”
This trend is not unique to Germany, as nations across Europe, North America, and Asia are "rethinking how to age well, and institutional capital is starting to view this sector as an essential, long-term investment theme rather than a niche,” explains Alexander.
For investors, the current landscape offers an attractive opportunity to enter the segment counter-cyclically. Alexander describes how particular value is found in the repositioning of existing assets. Transforming outdated properties into modern senior living environments is often more efficient, while also offering the advantage of immediate cash flow generation, avoiding lengthy pre-opening phases or permitting delays.
Alexander Fröse, Managing Partner at Periskop
Residential Regulatory Labyrinth
Regulation is frequently identified as a primary hurdle to residential development in Europe. However, across the industry, a nuanced perspective is emerging: the challenge lies less in the existence of rules and more in their unpredictability and fragmentation.“Regulation creates a clear framework, sets quality standards, prevents excesses, and establishes barriers to entry that protect the market from opportunistic behaviour,” argues Colonie’s François Roth. “It helps professionalise the sector and ensures a minimum level of quality for residents.”
A transparent and rule-based framework is essential in such a complex sector, and this “high barrier to entry” is even noted as a structural advantage to those who are able to successfully navigate it.
However, “the issue is not regulation per se - it is unpredictability and constant change,” argues Heimstaden’s Lisa Strohbücker. “Long-term investors can manage regulation - if it is predictable. Persistent uncertainty, however, increases required returns and can reduce capital allocation to the sector.”
François echoes this view: “Investors can factor high property taxes, rent control, or specific constraints into their financial models. However, rapid, disorderly, or poorly coordinated changes significantly undermine the ability to plan over the long term.”
“Residential real estate is built on long-term investment horizons. What investors need is not an absence of rules, but a stable and predictable framework,” he affirms.
Local Fragmentation
One of the most complex nuances for global investors is the local fragmentation of regulation. Rules often vary not just by country, but by municipality or even neighborhood. François describes the extent to which “urban planning constraints, zoning rules, health regulations, or usage classifications can change radically from one side of the ring road to the other.”The variation in legal classification complicates the matter further, namely “the definition of housing, the distinction between long-, medium-, and short-term stays, the boundary between civil and commercial activity, and the regulation of associated services. The same product may therefore be considered traditional residential in one city and a commercial activity in another, with major regulatory and fiscal consequences,” explains François.
The irony: tenant needs and usage patterns of residential assets are strikingly similar across European metropolitan areas, as flexibility, connectivity, quality spaces, and central locations remain fundamental characteristics of living assets.
“Long-term investors can manage regulation - if it is predictable. Persistent uncertainty, however, increases required returns and can reduce capital allocation to the sector,” says Lisa Strohbücker. (Credit: Freepik)
Regulatory Threshold
Undoubtedly, regulation regarding European residential investment must be factored into financial models from day one. Risk must be assessed asset by asset, stress-testing rental growth assumptions, factoring in ESG CapEx, and assessing long-term cost coverage, explains Heimstaden’s Lisa Strohbücker.But is there a point where regulation turns an asset uninvestable?
“There is a threshold,” warns Lisa. “If regulation structurally prevents income from covering OpEx, CapEx, and compliance over the long term, the investment case no longer works.”
One thing is clear, the vast majority of Europe’s major cities are in stark need of more housing, and if regulatory intervention continues to disincentivise new production, the supply gap will only worsen.
As DeA Capital’s Pierre Julin describes, “households are fragmenting; more of us are living for longer; everyone is feeling the pinch from higher prices. The lack of housing across Europe keeps heightening while the rise in interest rates has significantly impacted the private market. In this context answering the need for homes that people can actually afford has become essential.”
The fundamental driver remains this critical need for homes that reflect modern, mobile lifestyles. For those who can execute with local precision, the sector remains a cornerstone of long-term institutional value.
Thank you to our esteemed GRI Institute members for their valuable contributions to this article: Alexander Fröse (Periskop), François Roth (Colonies), John Jacobs (GSA Group), Lisa Strohbücker (Heimstaden), and Pierre Julin (DEA Capital).