Historically the most resilient of all property asset classes, Student Accommodation is getting a bad rap during the recent and ongoing covid crisis.
The sector has had a turbulent year following lockdowns that closed universities and prompted thousands of students to vacate their accommodation. Several of the sector’s larger players offered affected students rental refunds for the period,
UK student accommodation providers have been hit particularly hard by the number of international students who chose not to come for the 2020/2021 academic year due to travel restrictions and concerns about the pandemic. The U.K. is one of the largest markets in the world for international students, who make up 20% of the total student population, and clearly these were unable to take up their digs.
Whilst university campuses closed down during the lockdown, the occupancy rates are not as bad as first expected. The three largest listed U.K. purpose-built student accommodation (PBSA) providers, Unite Group PLC, Empiric Student Property PLC and GCP Student Living PLC, reported occupancy of 88%, 70%, and 69% respectively.
Studying did not grind to a halt, and for the most part lectures moved into digital format. Undeterred by the possibility of beginning university studies online a record number of 18-year-olds in the UK applied to go to university, to begin studying in the autumn.
Globally, due to many students deferring, and the decisions of the young population to attend university rather than enter the workplace during the financial crisis, there is expected to be a huge demand for PBSA in the next academic year, especially with the UK and Australia announcing friendlier visa and immigration policies.
The resilience of the student housing sector is underpinned by continuing strong demand for higher education abroad. If previous numbers are anything to go by, the sector has successfully proven itself to be highly resilient in terms of quality and investment performance.
In Europe alone, there are around 185 projects that are due to be completed in 2021, with an additional 95 projects set to open in 2022, and approximately 70% of these are likely to be delivered on time.
Real estate funds have their eyes on PBSA with key jurisdictions including the Nordics, the Netherlands, Germany, the UK, Italy, France and Spain, investing hundreds of millions of dollars over the next 12 months. Blackstone recently purchased iQ student accommodation for £4.66 billion in one of the biggest student housing transactions globally to date.
Germany’s Allianz is continuing to delve into the Asia Pacific region with the purchase of a two-property portfolio in Australia and the US. Also, there is a strong interest in Poland and France in terms of investment, which is predicted to double between the second and third quarters.
But what if you are not a big fund, and you are rightly nervous to invest in a currently shaky sector?
Are there alternatives to PBSA investments?
Here at Hurst & Wills, many clients have raised the question of alternatives in the market. Long known as a good yield play, student accommodation is not leverageable. The exit strategy can be less straightforward than owning a full title apartment. Some investors are put off by the un-sexiness of the investment and the areas, often not the most sought after.
Investing in small well located residential apartments, that are close to learning institutions with a large student population makes sense. Unlike student accommodation, residential apartments could also be leveraged, and provide a more liquid exit. The yields are likely to be less, and unlikely guaranteed, though in some areas, you can see 6% yields for the right properties.