Student Housing—tried and now tested

Despite last year’s unprecedented occupation and cash flow problems, the sector is emerging stronger, demonstrating real resilience and intrinsic growth potential.

Recent studies show that students, bereft of the conventional university experience and forced to learn online from home, remain committed to receiving quality tertiary education in person. Surveys conducted in the USA and Canada indicate that 63 percent of students claim they have received inferior overall tuition standards online. A survey of 5,000 students by ICEF shows they will likely switch university destinations rather than not learn in person, with 75% of Chinese students indicating they would accept quarantining to study in person. Many also feel ‘cheated’ of their precious (and often expensive) time at university.

Global travel restrictions may have stunted the growth of international student numbers during the 2020/2021 academic year, but recent evidence suggests enrolment bounce-back. The compound annual growth rate for international students worldwide was running at 5.7 percent between 2001 and 2018, and the latest UCAS numbers for UK university applications for 2021/2022, show that non-EU international applications are up by 17.1 percent year on year. In addition, there is an increasing propensity, to study away from home in the major continental markets of Germany, France, Italy and Spain–intensifying the occupational demand for fully specified, well located, modern student accommodation.

“The student accommodation sector is a developing asset class in the Italian real estate market, representing an asset class with great investment potential and geographic diversification.”

Antonio Fuoco, Head of Living Capital Markets, Italy, JLL

Occupational growth is leading to operational platform expansion across borders as the sector develops in Continental Europe. Investors require local operational expertise, sensitive to local cultural nuances, with the high standards and marketing reach to attract domestic and international student populations.

This is leading increasingly to ‘marriages’ between capital partners and specialist developers and operators, providing a route to market and sector expansion, as demonstrated by Greystar, Ivanhoe Cambridge and Bouwinvest in France, Axa and CBREGi with the Resa platform in Spain, and and Nuveen with Value One across Southern Europe and now Poland. 2021 is turning into another pivotal year for these for these joint venture creations and leading to further aggregation between developer/operational platforms and capital partners. H2 2021 will be highly active, as investors both European and North American based, seek access to the sector across all western European countries.

The more immature PBSA markets in Spain and Italy are leading the way, with new joint venture development agreements. As Juan-Manuel Pardo, Head of Living Capital Markets in Spain notes:

“In Spain, there are more than 20,000 PBSA beds in the pipeline which are due to be completed by 2023. These are mainly being developed by joint venture partnerships between local developers and international investors, who recognise the current low levels of supply relative to the sustained growth in student numbers.”

Liquidity was an issue in 2020 but is now far more available across most markets; Commerz recently providing the debt for a scheme in Valencia and Blackstone providing a facility for provincial assets in the UK This key element of the marketplace is once again oiling the wheels of transaction activity.

Despite the turbulence of the past 18 months, estimates for year end 2021 PBSA investment market volumes are up on the previous two years, and capital market activity is heating up especially in the mature UK market. Yields have remained stable across Europe, and now show a noticeable widening gap with the fiercely sharpening multifamily yields. With real rental growth potential and increasingly attractive yields, the student housing sector is back on the investors’ radar.

Huw Forrest, Head of UK Student Housing Capital Markets explains:

“Student accommodation offers a more attractive yield compared to build-to-rent (BTR) and generally has more stock availability, given it is a more mature sector than BTR in the UK, at the moment.”

Lennard Magis, Head of Living, Netherlands also outlines his recent experience of the PBSA market:

“Our client, KKR with Roundhill, developed the Prisma Tower on the Zernike Campus in Groningen, a top Dutch Student city in The Netherlands. Delivery took place in the Summer of 2020 and lease-up went exceptionally well. We convinced our client about the momentum in the market and expected pricing. The Dutch PSBA is moving from a niche market to a more mainstream one and many, predominantly foreign investors are showing an interest in this asset class. JLL structured a sales process that created maximum deal security for our client and resulted in a competitive process through to the signing of the sale and purchase agreement (SPA), in a short and controlled time frame.”

IQ/Blackstone are aggressively on the acquisition trail, Xior are actively expanding their real estate investment trust coverage across European borders, and both the value-add and core/core+ investors are active in the sector, many for their ever-growing Living funds. Aggregation and operational joint ventures are significant themes in the market, as investors embrace the developing sector and the growth potential. Healthy bidding is being witnessed in market processes across Europe, from the income-led assets and portfolios in the UK, to the more development-led forward schemes in southern Europe.

Don’t be put off by last year’s knocks. This is a market to watch; it shows great resilience and real growth potential. It is most definitely not ‘out’ and is coming back strongly.

Julia Martin, Head of Student Housing, Living Capital Markets, EMEA, JLL

This article forms part of our latest European publication titled ‘Investing in Living’. To download the full brochure, please click here.