The US paved the way for private student housing, followed by the UK, at increased speed and volume, and with nuances of its own. Investors’ interest then spread across continental Europe, which is experiencing considerable growth in its international student population, and Australia. These markets account for most of the global student housing investment. They show signs of consolidation, with a rapid increase in the number of established portfolios, joint ventures and interest shown by global institutional investors.
Recognising the benefits of the recession-proof higher education sector, and the fact it produces higher yields than the traditional residential market, investors are venturing into new emerging markets, such as central and eastern Europe and Latin America. In fact, Bonard has announced Latin American’s first student housing study.
About €1bn of capital is now looking at Poland which, as a market for students is considered by many to be the next Italy. Bonard has conducted three times as many research projects and assessments in Poland compared with a year ago, looking at about 20 opportunities.
To date, the entire student housing sector has seen the involvement of over 700 companies, including the largest institutional investors and pension funds listed among the IPE’s Top 100 Real Estate Investors. Allianz Real Estate and AXA IM–Real Assets were involved in Australia’s market consolidation last year via Scape’s Australian Purpose-Built Student Accommodation Fund (APF), which acquired two of the largest portfolios in the country – Atira and Urbanest. Dutch pension fund investor APG has joined the APF as well.
Liberty Living, one of the largest student-housing portfolios in the UK, was acquired by Unite Group for a total of €1.6bn, although the seller, Canada Pension Plan Investment Board, will keep a 20% stake in the Unite Group following completion of the deal.
Among other deals, Nuveen has announced a €600m pan-European student-housing joint venture with Value One, while Singapore state investor Temasek, via its investment unit Mapletree, has been purchasing properties in the UK.
In continental Europe and UK alone, this investment appetite has translated to 142 PBSA projects and 43,655 beds due for completion in 2019. The student housing asset class has been maturing to a stage of transparency, returns and liquidity that offer sufficient security and confidence for many private and institutional investors.
Based on Bonard’s research into 130 cities and 5,600 PBSAs globally, as well as data accumulated from thousands of student surveys, product is increasingly determined by student preference. Students prefer amenities such as communal areas and quality of service, over larger and better equipped rooms.
Our data shows that amenities such as laundry rooms, communal kitchens, food-and-beverage services, and terraces are high on students’ list of preferences, no matter the destination, with some regional differences in other popular choices such as study rooms, gyms, libraries or games rooms.
However, the product differs in all of today’s four major markets. In the US, student housing is typically attached to one university, located on campus, with accommodation paid annually. In the UK, universities tend to be more closely involved in PBSA through nomination agreements, where they agree to nominate a minimum number of students in return for more control on rents and operational matters. In continental Europe, PBSAs are off-campus, offering central locations and state-of-the-art buildings. In Australia, premises are at hotel level, with strong design and upmarket facilities, often in large-scale buildings and high rises.
“Demand is driven by the constant growth in mobile and international student numbers. The demand is growing faster than in other asset classes and even during economic downturns, making it a counter-cyclical asset class” – Samuel Vetrak
While the UK continues to be the strongest market, continental Europe is booming due to its low provision rates – one million beds are needed to match the current UK market saturation. This gives investors an opportunity to bring new product concepts, such as hybrids or co-living, to undersupplied territories at an earlier stage, providing under-one-roof accommodation for students and young professionals.
Student housing continues to rank high as a sector prospect for both investment (4th) and development (9th)3. A pipeline of new projects in continental Europe and the UK will bring 338 private PBSA projects (with 130,678 beds) to the market in the next two and a half years, while details to additional 320 announced projects (representing 91,636 beds) remain undisclosed.
In 2020, even stronger growth in volume and portfolios is expected: of Europe’s current 107 student housing portfolios, 82 have fewer than 5,000 beds. With significant room for consolidation, both mid-sized and bigger portfolios are expected in transactions in 2020.
As reported in December 2019, Goldman Sachs and Welcome Trust are believed to be considering bids received for their IQ Student Accommodation, one of the largest of the UK’s student-housing portfolios comprising 67 accommodation sites.
Sources say that some of the largest real estate investors, including Blackstone, Brookfield, Greystar, Mapletree and Patrizia, have been looking at this portfolio. Alternatively, the portfolio is being considered for an IPO in London.
The article was originally published in IPE Real Assets (March/April 2020 issue). You can read it online at the following link.
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