World Student Housing

World Student Housing
 
A rapidly expanding sector

6 October 2016, by Paul Tostevin

Record investment levels in the UK and the US have been accompanied by significant growth in key European markets

 

Investment into the global, purpose-built student accommodation market has seen rapid expansion over the past 24 months led by record investment levels in the UK and US. Some key European markets have also seen significant growth, including the Netherlands and Germany, while cross border investment volumes in 2015 reached new highs.

With low correlation to the traditional real estate asset classes, student housing has proved effective in diversifying property portfolios. Low void rates, a robust demand base and attractive yields have helped to cement its appeal. Yield compression in the sector is now being observed, and maturing of the sector has brought a shift in investor type. Private investors, who historically have been the most active, are giving way to established institutional players.

Investment volumes

After a record breaking 2015 when $14.9bn was globally invested, volumes eased slightly in the first part of 2016. The UK was the stand out market last year, the recipient of some $7bn investment as several large portfolios came to market.

UK volumes up to August 2016 (including funding, development and investment) stand at £1.9bn ($2.5bn). The UK market remains fragmented so further opportunities for consolidation exist. We anticipate that further consolidation via mergers and acquisitions will be one of the defining features of coming years.

Meanwhile the US saw a pick-up in activity in the late 2015/early 2016, reflecting growing US real estate investment volumes across all sectors. Some $5.4bn was invested in the US student housing sector in H1 2016 ($8.1bn in the year to Q2 2016). The US student housing market is by far the most mature globally, supported by a student population in excess of 20 million. An increasing international student population and limited supply in core city markets should sustain demand for student housing investments in the medium term.

FIGURE 1

Global investment into student housing (Annual total)

 
Figure 1

Source: RCA (trades above $7.5 million)

Student REITs outperform

Dedicated student real estate investment trusts (REITs) have grown rapidly over the last five years. Their higher liquidity profile have made them attractive to those seeking shorter term exposure to the PBSH market.

The US currently has two student housing REITs – American Campus Communities and Education Reality Trust. Over the past 24 months they have outperformed all-property REITs by 19 percentage points. A third US student housing REIT, Campus Crest Communities, was delisted when acquired by Harrison Street in early 2016 for a record $1.9bn.

The UK also has two student housing REITs: Empiric Student Property and GCP Student Living. These have outperformed the UK REITs index by 16 percentage points over the past 24 months.

Alongside the listed UK student housing REITs, Unite Group plc operates an open-ended non-listed Unite UK Student Accommodation Fund (USAF), as well as a joint venture with GIC Private Limited called London Student Accommodation Joint Venture (LSAV). Combined, the fund and equal partnership comprise 31,449 student beds across 24 university towns and cities UK wide. The group intends to convert to a REIT status by early 2017.

The growth in importance of REITs and investment funds reflects the maturity of the sector in both the US and UK and its ability to attract money from the realm of indirect investment.

FIGURE 2

US and UK Student Housing REITs vs All REITs indices

 
Figure 2

Components: US REITs – American Campus Communities (NYSE: ACC), Education Reality Trust (NYSE: EDR); UK REITs - Empiric Student Property (LON: ESP), GCP Student Living (LON: DIGS)

Source: FTSE Russell

FIGURE 3

Student housing (SH) yields and sector comparison

 
Figure 3

*Paris

Source: Savills World Research, bond yields as at 17/08/16

European investment

US and UK student housing markets have dominated global investment in the last three years. But with the maturing of these markets, investors are looking to new markets for higher returns and mainland Europe is at the forefront.

Germany: In the first seven months of 2016 some €350m was invested in German student property, more than double the total invested in 2015 and nearly the same volume as the previous two years combined.

In the first quarter of 2016, DREF acquired a student accommodation portfolio worth €85m located in a mixture of German cities including Berlin, Stuttgart and Bremen. The Luxembourg-based fund invested a further €60m in an acquisition of Olympia Karree; a former residential complex in Munich.

International investors have been active too. The UK’s Global Student Accommodation Group (GSA) acquired a 1,000 unit portfolio and has plans to expand in the country further.

The most active players on the buying side have been investment funds and asset managers.

Netherlands: International investors, operating in the UK, Germany, France and Belgium, are realising potential in the Netherlands and have started to build a presence in the country. Two thirds of investment in the sector has come from abroad since 2014. Total investment volumes reached close to €350 million in 2015, almost double that of 2014 and over four times 2013 volumes.

In the 12 months to Q2 2016 the largest transactions have been made by Greystar, purchasing the 939 unit Campus Diemen Zuid, IC Campus purchasing the 869 unit Little Manhattan project in Amsterdam, and Xior’s purchase of the 143 room Carré project in Maastricht.

Yields have contracted over the past 18 months, but for the remainder of 2016 and 2017 we forecast they will remain fairly stable.

France: Some €345m was invested in the French student housing market in 2016 (calendar year to August), according to Savills estimates. This is already 91% of the total volume invested in 2015, itself a record high (€375m). The majority of this investment was into new PBSH development schemes.

French investors remain dominant, led by Swiss Life and Gecina. Real estate investment manager Swiss Life acquired a number of development assets across the country, totalling €137m at a net yield of 4.5%. La Française made its first entry in the student housing market when it acquired the Zodiac property in Paris at the beginning of the year.

FIGURE 4

Global cross border investment into student housing (existing stock)

Inbound and outbound cross border investment in the last three years (Q3 2013 – Q2 2016)

Cross border investment in this fast maturing global asset class accounted for 40% of all global investment activity in the last three years. This map highlights the major spenders, and recipients, as well as some of the largest cross border deals.

 
Figure 4

Source: Savills World Research, RCA

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Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883