Investors still see long-term potential in student accommodation

The Student Hotel in Eindhoven

In February last year in the midst of the Covid-19 pandemic, Blackstone completed the largest-ever private property deal in the UK by buying iQ Student Accommodation for £4.66 billion.

It was an illustration of just how highly investors rate the student accommodation sector, and it’s not just the UK that is seeing, sustained interest.

Later in 2020, Ivanhoé Cambridge and Bouwinvest Real Estate Investors joined with Greystar Real Estate Partners to invest €1 billion in developing student and young professional housing in the Greater Paris Region.

“Globalisation has created a platform to allow young people to be increasingly transient.  Efficient visa programmes on the continent are giving international students the opportunity to travel to study at world class, historic institutions across the European continent,” Niamh O’Connor, executive director at Summix Capital told Hospitality Insights.

“Students from South America for example are attracted by the cultural similarities of Spain and Portugal and the ability to study in their native language whilst other global students see the benefits of the wide range of English-taught courses on offer in Ireland, the Netherlands, Poland and many other countries in Europe.”

There has been a generational change in housing needs, coupled with sustained high numbers of people in tertiary education. Both the above mentioned investments are hoping to capitalise on the imbalance in the supply of high-quality student accommodation.

“Demand for high quality, affordable housing from student populations in large, metropolitan areas with top quality higher-education institutions is only one side of the story, it’s also about the attractiveness of those locations for graduate professionals; that then retains investor appeal well beyond current Covid-19 disruption,” Nick Wride, head of student housing EMEA for JLL said in July 2020.

Pandemic Impact

While deal making has continued during the pandemic there are some concerns that the changes necessitated by repeated lockdowns may end up hurting the sector. Remote learning was forced upon many institutions but as in the world of work it may usher in changes that stick around.

The silver lining for investors though is that although learning can be replicated online the rest of the university experience cannot.

“The student market was in great health prior to Covid-19 with some of the best student and investment metrics on record. The pandemic has impacted demand for accommodation, but this is expected to be limited to the 20/21 academic year,” Tim Pankhurst, Senior Director, Student Accommodation at CBRE, said in September last year.

“With such strong underlying market fundamentals and resilient track record for total returns there is the potential for a strong bounce back in September 2021, if not sooner depending on how the next few months pan out.”

UK University application numbers have increased 8.5% for the academic year starting this September, which bodes well for future growth trends. The slight dark spot for the UK market specifically is the impact of Brexit on applications from the EU, which fell 40%.

Hybrid hospitality

It’s not just dedicated student accommodation itself that is benefiting from prevailing trends. As in other sectors like senior living there has been a rise in hybrid developments that bring together different segments.

Charlie MacGregor got the idea for what became The Student Hotel brand after observing that students weren’t trusted to look after things so often weren’t provided with nice facilities. This led him to imagine a different way of operating.

“When I realised that it was best to use a hotel model in the EU to host students I saw the massive added value of being able to invite parents or graduates and young professionals to also be part of this community,” he told Hospitality Insights.

The Student Hotel now has grown form three hotels to 16 in the last seven years having been backed by private equity firm Aermont Capital and Dutch pension manager APG. One of its core differentiators is its beyond-the-room focus.

“This atmosphere is created by our community - students, co-workers, extended stay, hotel guests and the locals. All of these groups come together and make up our community. When you throw in the events we host like the Forbes 30Under30 event you have an exciting, vibrant  space which is a great home to our guests,” MacGregor said.

Insight Comment
Like everything else, student accommodation suffered at the hands of Covid-19 and there are genuine reasons for investors to be careful, given the possible side effect remote learning may have on the university experience. Still, you have to figure that young people are still going to want to travel and hang around with their peers as part of their tertiary education.