Best Ideas 2026

Global Living: Tapping into Structural Growth

Sphere expanding with columns representing buildings.

Around the world’s major cities, strains in housing provision continue to be a major theme (Exhibit 1). Many common factors contribute to this: high mortgage rates and stretched affordability are constraining ownership; urbanization and inward migration flows to cities are pushing up demand; and planning constraints and elevated building costs are holding back new supply. Housing shortages are growing and in an increasing number of cities there is a lack of modern, fit-for-purpose stock to meet the needs of households.

Real estate investors have a role to play. Today’s living markets represent a compelling opportunity based on the basic needs-based nature of underlying demand that provides cashflow predictability and a relatively low risk profile.

Exhibit 1: Constraints on Global Housing Provision and Affordability

Line chart highlighting global housing prices and household income since 2000 and a bar chart highlighting the estimated housing shortfall in major global economies since 2001.
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Sources: Oxford Economics, CoStar, PMA, U.S. Census Bureau, PGIM. As of January 2026. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.
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Line chart highlighting global housing prices and household income since 2000 and a bar chart highlighting the estimated housing shortfall in major global economies since 2001.
Sources: Oxford Economics, CoStar, PMA, U.S. Census Bureau, PGIM. As of January 2026. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.

At the same time, market requirements are evolving, adding to strains. Aging demographics imply a growing need for age-restricted and senior-living products, while students and fresh graduates drive a need for the provision of compact living spaces, including student accommodation and co-living. In many parts of the world, rental housing demand is rising, notably for families that traditionally have leaned toward ownership.

The structural nature of the growth in housing needs supports expectations that elevated occupancy will continue, and there is scope to drive asset-level rental growth against a backdrop of rising household incomes.

 

Regional Dynamics Differ

While there are common factors around the world, differences in local market dynamics—including regulations, occupier preferences, supply cycles and institutional participation—means that the investment opportunity set varies across and within regions.

In the United States, suburban locations are well-positioned to benefit from shifting demographics and rising wages among higher income earners. Demand for more living space and quality schools, coupled with ownership affordability constraints, is supporting single-family rental demand. Low-vacancy suburban submarkets in gateway cities offer the strongest prospects, while occupancy in Sunbelt markets is lower after a prolonged period of supply growth.

Senior housing represents a significant opportunity, fueled by rapid growth in the 80+-year population that is expected to continue for years to come, notably in lifestyle-driven Sunbelt markets including cities in Florida, Arizona, and Texas. Rent momentum is being sustained by a constrained pipeline and improving affordability among senior households on the back of elevated asset prices and high income levels. Operating expense growth is also cooling as wage pressures moderate.

The story across Europe varies (although demand for new housing units in most major cities is significant) while supply growth has been held back by elevated build costs, high borrowing rates, and planning restrictions in recent years. Rental growth is expected to broadly track household income growth in years to come, although this story comes under threat in cities with rent controls (Paris, major German cities) and where apartment rents rose sharply in recent years (Madrid).

Institutional depth is low in Europe, and the entry point for equity investors is typically via development rather than existing portfolios. In 2025, development remained restricted by tight profit margins, but recovering values, falling interest rates, and stabilizing construction costs are increasing the viability of traditional residential formats. High-density living concepts, including student accommodation and micro-living, remain an attractive route to deployment as development margins are higher and rental growth is less affected by regulation.

In Asia-Pacific, ownership and rental affordability is stretched in cities across Australia and Japan—the main institutional investment markets for living in the region—alongside a supportive city-level demographic story. Growth in international student numbers is expected to remain strong across the region, although the prospect of tougher entry requirements or caps, such as in Australia, require careful underwriting.

At the other end of the age spectrum, Singapore, Seoul, Melbourne, and Brisbane are all expected to record a sharp increase in senior population in the coming years. Accrued increases in housing wealth make the expanding senior living market affordable to many households.

 

Traditional Versus Operational Investment Model

Living-sector investment is becoming more operational, reflecting two main factors. First, management platforms that handle leasing and maintenance at scale can drive rental growth and minimize expenses, while adding other amenities can push rents higher than the wider market. Even traditional for-rent residential assets need an operational overlay to be successful. The second is that non-traditional living sectors are gaining in share and importance, with platforms for student accommodation, senior housing and micro-living now a clear part of the institutional investment universe. High tenant churn is a feature of such assets, making sales and marketing efforts key to maintaining occupancy and driving income growth.

Operational living sectors have several key advantages. One is demographic tailwinds. For example, in many countries, student numbers are rising, driving demand for purpose-built student housing, but also for compact apartments that serve a growing body of recent graduates in major cities. Perhaps the most notable opportunity is in senior housing for which growing 80+ populations—and the scale of asset wealth held by that generation—globally point to a need for increasing provision and, significantly, an ability-to-pay story that overcomes factors, such as elevated build costs. Unlevered gross total returns are expected to remain elevated in the U.S., for example, (Exhibit 2) for both assisted and independent living, where demand and rental growth projections are strong against a reduced supply pipeline.

Exhibit 2: Strong Outlook for Senior Housing Returns in the United States

One bar chart showing the assisted living/memory care buy-and-hold returns (%) and another bar chart showing the independent living buy-and-hold returns (%).
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Sources: Green Street, PGIM. As of January 2026. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.
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One bar chart showing the assisted living/memory care buy-and-hold returns (%) and another bar chart showing the independent living buy-and-hold returns (%).
Sources: Green Street, PGIM. As of January 2026. Forecasts may not be achieved and are not a guarantee or reliable indicator of future results.

At the same time, high risks require operational expertise. Elevated rental growth assumptions stretch affordability, while operating models are vulnerable to such factors as staffing shortages, wage increases, and rising energy or equipment costs, all of which can erode margins, associated enterprise, and real estate valuations. As always, choosing well-established partners is key to deploying capital in these markets and mitigating the higher risks.

 

Living as a Credit Play

The secure cashflows generated by living sector assets are particularly well-suited to credit investments. With banks in a structural retreat from the real estate sector globally, alternative private lenders are increasingly able to underwrite loans in the sector. For lenders with a higher risk appetite, there are several entry routes into the market. One is to finance new development, a strategy that is expected to grow as construction opportunities return to global markets in 2026 on the back of stabilizing build costs and rising values. There are also significant opportunities around transitional lending, including for modernization of older stock in the U.S., and retrofitting assets to meet ESG regulations in Europe. 

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