The Hidden Revolution: How Operational Real Estate is Transforming Europe
Exploring Emerging Opportunities in Student Housing, Senior Living, Flexible Offices, and Data Centers
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I recently met a senior real estate executive in Italy who reinforced a trend I had observed for some time: commercial real estate is increasingly transitioning into an operations-focused model.
Don’t get me wrong—bricks-and-mortar real estate will always exist. By bricks and mortar, I mean the traditional method of developing and selling for profit, typically applied to single-family housing and extended to commercial real estate. There was a time when trader-developers would build office spaces speculatively and sell them to investors who would then manage the leasing.
However, the “bricks-and-mortar” model has its limitations and represents the most basic form of real estate investment.
Today, millions of square meters of buildings face potential obsolescence. To address this, it’s crucial to develop a deeper understanding of what can be done with these properties. This requires studying the market, understanding what customers need from buildings, and analyzing the demographics and psychographics of a location. How do people work, live, and shop today?
All of these aspects depend on how buildings are operated. Buildings today must suit the operations within them rather than the other way around.
In this newsletter, I will provide an overview of a few operational models that I find interesting and believe are in growing demand in Europe:
Commercial Real Estate Is an Operational Business
Student Living (PBSA)
Senior Living
Flexible Offices
Investing in Operational Real Estate
Each one is worthy of a deep dive in future issues of this newsletter.
Let’s dive in.
1. Student Living: Unlocking the Potential of PBSA
Purpose-built student accommodations (PBSA) exemplify operational real estate. This sector addresses a critical gap—the rising student population outpaces available on-campus housing. PBSA offers a resilient, high-demand investment opportunity, but operational success is key.
Annual turnover rates and the need for tailored amenities require dedicated property management. Effective operators engage tenants through community events, maintain facilities designed for student needs, and adapt to regulatory changes.
In the UK, PBSA is an established investment class. In Italy, however, it is still an emerging sector that is attracting interest from investors. Local development operators are scarce, and it’s challenging to make the numbers work in peripheral cities. Nonetheless, the economics in Italy remain strong. In any major Italian city with a university, the demand for student accommodation significantly outstrips supply.
2. Senior Living: Catering to Europe’s Aging Demographics
Senior living is another burgeoning sector. Europe’s aging population drives demand for facilities that balance independence and support. Effective management directly influences property value and resident satisfaction.
Operators must navigate stringent regulations, deliver high-quality services, and adapt to residents’ changing needs. Revenue often stems from a mix of rental fees and additional healthcare or lifestyle services.
Italy has a particularly acute aging population problem, and this asset class is still emerging. A few years ago, I visited a building managed by French operator Domitys in the city of Bergamo. The quality of the facility was impeccable, and residents could enjoy a vast range of on-site services designed to make their lives easier, including a restaurant, gym, pool, and beauty salon. Security was high, and the facility was tailored to residents’ needs.
3. Flexible Offices: Adapting to the New Work Landscape
Flexible offices have been around for years but represent a significant shift in operational real estate for the office sector, responding to evolving work trends. Since the COVID-19 pandemic, tenants are demanding spaces that align with dynamic business needs.
What makes flexible offices attractive? Shorter and flexible lease terms, community engagement+, events, and tech integration. Successful flexible offices are well-managed, amenity-rich, and keep the community engaged through events and networking opportunities.
A recent sign that this model is here to stay was CBRE’s acquisition of Industrious, a global flexible office operator competing against brands like IWG and WeWork.
4. Data Centers: The Backbone of the Digital Economy
Data centers play a pivotal role in the modern digital economy, supporting cloud computing, data storage, and processing services. The growth of AI has amplified the importance of this asset class, with major global players like Brookfield and Blackstone announcing their investment interests in the sector.
Data centers are unique operational real estate assets. Unlike traditional properties, they require active management of critical infrastructure, such as power, cooling, and network systems. This complexity ensures uninterrupted service and positions data centers as high-value investments with strong tenant retention rates.
For example, the development of Tier 4 data centers highlights their importance in industries requiring maximum uptime, such as finance and healthcare. A recent project in Spain, led by Data4, demonstrates the sector’s growth, combining advanced infrastructure with local economic contributions through job creation and innovation.
5. Investing in Operational Real Estate
Navigating operational real estate requires addressing challenges and seizing opportunities.
Key Challenges:
Supply shortages and high construction costs limit available assets.
Regulatory pressures, especially around ESG criteria, require proactive adaptation.
Economic uncertainty influences investor confidence.
Key Opportunities:
Rising demand for rental housing, driven by urbanization and demographic shifts.
Recovery in hospitality sectors, with expanding luxury and travel markets.
Growth in alternative sectors like logistics, data centers, and flexible offices.
Conclusion
Operational real estate is transforming the industry. By understanding market demands, regulatory landscapes, and customer behavior, stakeholders can unlock significant opportunities.
Here are the main takeaways:
Student Housing Growth: Student housing in Italy is an emerging asset class. Growth is supported by high demand and limited supply, presenting significant opportunities for investment.
Energy-Efficient Data Centers: Data centers are critical for supporting AI infrastructure, with energy efficiency being a key factor for sustainable operations.
Senior Living Demand: Europe’s aging population is driving increased demand for senior living accommodations, especially in emerging markets like Italy.
Flexible Offices’ Vital Role: Flexible offices are poised to play a critical role in revitalizing obsolete office spaces and supporting hybrid work models.
Whether investing in student housing, senior living, flexible offices, or emerging sectors, the path forward requires innovation and adaptability.
Weekly Resource List:
1. PwC, Emerging Trends in Real Estate®: Europe 2025 (Reading time: 10 minutes)*
Provides comprehensive insights into the European real estate market, highlighting the shift towards operational models and the impact of AI on the industry.
2. Savills, Italian Student Housing Market Spotlight – June 2024 (Reading time: 8 minutes)*
Analyzes the growth and challenges of the Purpose-Built Student Accommodation (PBSA) sector in Italy, emphasizing the demand-supply gap in major university cities.
3. Data Bridge Market Research, Europe Elderly Care Market Size & Industry Statistics By 2031 (Reading time: 7 minutes)*
Discusses the expanding elderly care market in Europe, driven by the aging population, and the increasing need for senior living facilities.
4. CBRE, European Data Centres Overview (Reading time: 9 minutes)*
Offers an overview of the data center market in Europe, detailing growth drivers, investment trends, and the sector's critical role in supporting digital infrastructure.
That’s all for today.
See you next week.
— Carlo
Founder and Managing Director Benigni
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This post is sponsored by Benigni a specialist development manager working with international investors to realise long-term value through optimised development strategies. To learn more click this link to our website.
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I use the expression RaaS (Residential as a Service) for properties that incorporate services and experiences for residents. I also see it as a rapidly growing trend in Brazil.