Global student accommodation market set to grow and increase more investors
The student accommodation market has started to emerge as a significant mainstream global investment category, attracting increasing interest from investors, developers and private operators, according to the latest research from international property consultants Jones Lang LaSalle.
It says that this year student accommodation investment and transactions in the UK will have exceeded $3 billion, over double the level seen in 2011. In the US, transaction levels are nearer to $2 billion.
Although sometimes described as an ‘alternative’ investment sector, in these markets student housing is increasingly sought after by mainstream institutional investors.
Philip Hillman, lead director of Student Housing and Higher Education team in London said that student housing is increasingly a global asset class because students are increasingly international and mobile so developers and operators of student accommodation now operate across continents and investors are increasingly investing overseas.
The sector’s rapid growth has been underpinned by the rise in student numbers worldwide. Indeed, growth has increased from 98 million in 2000 to 165 million by 2011 and is expected to reach over 263 million by 2025.
Over half of these students have come from Asia, followed by Europe, Africa and South America. Such a rapid increase in demand has resulted in an undersupply of student housing and consequently an unbalanced student housing market.
This imbalanced market has resulted in outperformance both in the UK and US, outperforming other commercial real estate sectors delivering total returns of between 11% and 15%. Stable income and solid rental growth plus resilient performance in downturns are key appealing attributes resulting in high occupancy rates where enrolments are rising at a higher rate than supply.
The report also points out that global student housing transaction volumes have never been higher demonstrating the growing investor appetite for this sector. From the 12 months to June 2012, US$4.7 billion was transacted worldwide, with the most active markets being the US and UK, followed by Spain, Sweden and Germany.
This rapid expansion now indicates that the student housing market is estimated to be worth in excess of US$200 billion. Increased institutional interest reflects the maturation of the housing sector. Traditionally this sector has been dominated by developer/operators but increasingly equity funds, sovereign wealth funds, pension funds, investment managers and REITs are becoming more comfortable with this market and consequently have been the most active players of late looking to add these assets as growth components to their portfolio’s.
‘There are many opportunities this emerging asset class brings to those that those that are willing to invest. In the developed markets such as UK and USA, there are good investment opportunities through consolidation amongst key market players and institutional investors who are looking to diversify their property portfolio,’ the report says.
It adds that investors have been attracted by the counter cyclical nature of the sector. University enrolments have consistently grown during periods of economic downturn. The supply of new accommodation has struggled to keep pace with the surge in enrolments over the past 20 years and the shortfall of suitable accommodation has led to high occupancy and consistent rental growth.
‘Looking towards the emerging markets, it is considered that mainland Europe is around 10 to 15 years behind the markets of the UK and the US. There are few open market transactions at the moment but there are real opportunities for growth,’ it explains.
Markets in India and China are undergoing a transformation as large scale university construction is underway. While these counties will seek to educate many more of their domestic students, the increasing mobility of students and the desire for the best quality education of the emerging wealthy middle classes will ensure that study abroad student numbers globally will increase from around four million today to eight million by 2025.
Meanwhile in Australia, between 2002/2011, international enrolments into higher education Australian institutions almost doubled with 67% coming from Asian countries alone, making this and the wider Asia Pacific region areas of future growth.
‘Institutional investors in this sector require scale ability, the potential to secure significant operational portfolios with a development pipeline. The biggest barrier to major financial institutions investing in many of the emerging student accommodation markets is the lack of quality stock to invest in,’ said Hillman.
‘However the sector in these emerging markets should benefit from an accelerated acceptance of the investment characteristics of the sector as a result of the growth of the UK and US markets,’ he added.