The U.S. market provides a good illustration of these trends, where multifamily supply has failed to match demand every year for the last decade (see Figure 4). Since 2000, multifamily inventory growth has been only ~1.6% per year, which has resulted in a shortage of apartments. Over that same period, the sector has continued to absorb new supply as occupancy has averaged approximately 95%. Going forward, supply is expected to moderate even further due to zoning constraints, rising construction costs and a dearth of financing. The National Apartment Association and National Multifamily Housing Council expect that 4.3 million new apartments will be needed by 2035, which implies that the U.S. will need to deliver more apartments per year than it has historically. 

This undersupply has been exacerbated by rising land prices, limited land available for development, and higher building material and labor costs. According to the National Multifamily Housing Council, from 2014 through 2022, the producer price index for materials related to residential housing went up 48%. Over the past two years, the index increased almost 30%.² 
 

Similar trends are visible across Europe and Asia Pacific. In Europe, we believe the widening gap between the cost to own and the cost to rent will increase the number of renters as interest rates remain high and supply is scarce.³ China and India are both experiencing growing populations and continued urbanization, coupled with an ongoing housing shortage, which we expect will give rise to demand for institutional quality housing.⁴ With a median age of 28 years, India has one of the largest millennial populations, which is driving demand for rental housing among this demographic.⁵

When we think about housing, we see attractive opportunities not only in the traditional sense—multifamily, affordable housing, single family rental—but also in alternative types such as student housing, senior living and manufactured housing. These are supported by similar sector tailwinds and a resulting supply and demand imbalance. For example, manufactured housing stock in the U.S. is expected to decline 14% over the next 10 years, from 6.7 million units to 5.7 million units, further reducing the supply of affordable housing and strengthening occupancy.⁶

Students are seeking newer, modern accommodations with amenities, and we think there are opportunities to buy for value, renovate older stock and build modernized portfolios of scale. Across the U.K. and Continental Europe, increased demand from international students and interest in English-taught programs are coming up against a lack of higher quality purpose-built student accommodation. For example, in major university cities like London and Amsterdam, the provision rate of students to beds is roughly 30% and 27%, respectively.⁷

In the U.S., top university cities are seeing supply and demand imbalances with college-age or near-college-age populations exceeding U.S. averages.⁸ There are about 2.7 million purpose-built student housing beds compared with 20 million undergraduate students in the U.S. today, a provision rate of about 13%.⁹

Australia has also become an increasingly popular higher education destination, with one of the largest proportions of international enrollment. This is driving demand for purpose-built student accommodations.

Aging populations are also increasing demand for senior living properties, particularly in developed countries (see Figure 5). Meanwhile, the average cost to develop senior housing has increased by 17.8% since 2020.

Senior living is a relatively fragmented sector with high barriers to entry. We see opportunities to capture growing demand for high-quality properties—from senior apartments to higher acuity needs—by renovating assets. For example, Australia presents a very compelling opportunity, with 17% of Australians age 65 and over. That share is expected to reach 20% over the next 10 years, with less than 1,000 new units being delivered each year.¹⁰ 
 

Europe is experiencing a similar recovery in which tourism and leisure demand remains resilient—especially at the higher end luxury class, where 2022 RevPAR was 17% above 2019 levels.¹² In addition, new supply under construction in Europe represents a small share of total existing stock, particularly in Southern European leisure destinations such as Spain and Italy (see Figure 7).

In India, luxury hotels have performed well due to strong domestic travel. We expect this positive trend to continue as international travel resumes and demand continues for assets with amenities focused on health and well-being. For example, across Brookfield-owned hotels in India, revenue has surpassed pre-pandemic levels. 

In the current inflationary environment, experienced owner-operators with a proactive and hands-on management approach are better positioned to react quickly to re-price rates and recalibrate costs to improve profitability.

As the hospitality sector continues to recover, we expect operating complexity, higher debt service, and the capital-intensive nature of hotels to create motivated sellers. We see opportunities to target undermanaged and undercapitalized assets and platforms with exposure to markets with increasing demand. 

Entertainment

As younger generations become the dominant global consumers, they are also spending more on various forms of media. This is creating more demand for properties like performance venues and soundstages where content creators and global media companies create new video and musical content.   

Historically, much of the demand has had to rely on converted properties due to a lack of supply. But purpose-built stages have the infrastructure to support the technological needs of modern high-budget productions, including virtual soundstages and high power and data capacity. 

Further, we see opportunities to use these entertainment demand sources to establish vibrant, mixed-use communities that can take advantage of housing and commercial uses. 

Logistics

The pandemic accelerated e-commerce and online shopping and the need for more logistics warehouse space. Every sale that happens online requires three times more warehouse space than in-store sales,¹³ spurring growing tenant demand. As a result, in 2021 and 2022, we saw unprecedented absorption driven by e-commerce growth as customers rapidly shifted their shopping habits online. 

This in turn has continued to drive rents. For example, rent growth in the U.S. and Australia was up 19% and 16%, respectively, year-over-year.¹⁴  And while we do not expect to see the same level of absorption going forward, we do expect continued strong demand for high-quality, modern logistics facilities as companies continue to optimize their supply chains and meet consumer needs. 

Looking into 2023, we may see a rise in vacancies and a slowdown in absorption. However, vacancy in select regions is still at record lows and construction starts are slowing, which we expect will keep vacancy low in the coming years (see Figure 8). 
 

In Brazil, we see favorable supply and demand dynamics as e-commerce penetration continues to rise. In Australia, increased e-commerce adoption and limited supply of quality logistics centers have commanded one of the lowest vacancies globally. And in China, modern warehouse space per capita is a fraction of that in developed countries.¹⁵

Both public and private industries need infrastructure to create science and innovation assets onshore, including research facilities where new medical therapies are discovered and created, manufacturing facilities where scientists then commercialize and make such therapies ready for sale, and facilities for general scientific endeavors, including space exploration and clean energy research.

Meanwhile, the fundamentals of science and innovation real estate are robust across several markets. In the U.S., the major markets are Boston and San Francisco, where we've seen vacancy at less than 5% and rent growth between 5% and 10% per year over the last few years (see Figure 9). 

For companies to meet growing demand, they will need to invest heavily in their infrastructure and R&D capabilities. This means that the real estate market will need to provide more science-ready sites with premier facilities, co-working spaces and business support. As a result, new development has increased, driving a flight-to-quality trend. We believe that tenants will prioritize purpose-built space. 

Logistics

Manufacturers are shifting from just-in-time inventory management to just-in-case to secure and optimize their supply chains. We expect that the increase in domestic manufacturing will drive demand for well-located logistics space. Supply-constrained markets near major transportation and distribution centers and/or large population hubs are poised for continued growth in major markets around the world. In the U.S. and Europe, we expect onshoring and supply chain optimization to drive demand in already supply-constrained locations.²³

^Endnotes:

<sup>1. MSCI Capital Trends US Big Picture February 2023.    
2. NMHC, “Quick Facts: New Construction.”
3. CBRE Research Q3 2022.    
4. OECD, The Middle Class in Emerging Asia, December 2021.
5. RedSeerResearch; Millennial population in the 25-39 age group, GenZ population in the 10-24 age group; HDFC Investor Presentation 2022.
6. Moody’s Analytics.
7. Savills, “Spotlight: European Student Housing 2022,” October 27, 2022.
8. Environics Analytics/Claritas as of 2021. 
9. CBRE.
10. Center for Population 2022, National population projections in the 2022-2023 Budget, the Australian Government.
11. STR, February 2023.
12. STR, 2022.
13. CBRE, “E-Commerce’s Impact on Industrial Real Estate Demand.”
14. U.S. National Industrial Marketbeat, Cushman & Wakefield, Q4 2022; Australia Industrial & Logistics Report, CBRE, Q4 2022.
15. Savills Research, 1H2022.
16. Budget of the U.S. Government, Fiscal Year 2023.
17. BioPlan’s 19th Annual “Report and Survey of Biopharmaceutical Manufacturing Capacity and Production,” April 2022.
18. Source: Budget of the U.S. Government, Fiscal Year 2023.
19. Pitchbook Data, 2023.
20. French Healthcare, “Health Innovation Plan 2030: €7.5 billion to return France to its position as a leader in healthcare in Europe,” June 16, 2022. 
21. American Society of Gene + Cell Therapy April 2023.
22. JLL Research April 2022.
23. JLL Research April 2022.</sup>

^Disclosures

^{This commentary and the information contained herein are for educational and informational purposes only and do not constitute, and should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This commentary discusses broad market, industry or sector trends, or other general economic or market conditions. It is not intended to provide an overview of the terms applicable to any products sponsored by Brookfield Asset Management Inc. and its affiliates (together, "Brookfield").}

^{This commentary contains information and views as of the date indicated and such information and views are subject to change without notice. Certain of the information provided herein has been prepared based on Brookfield's internal research and certain information is based on various assumptions made by Brookfield, any of which may prove to be incorrect. Brookfield may have not verified (and disclaims any obligation to verify) the accuracy or completeness of any information included herein including information that has been provided by third parties and you cannot rely on Brookfield as having verified such information. The information provided herein reflects Brookfield's perspectives and beliefs.}

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