05 April 2018
It’s that time of year again, when the next round of school leavers wait with baited breath for their university offers and start to make decisions on which one to accept. Not only that, but once they’ve made their choice, they must establish where, on- or off-campus, they’re going to live. These days, interest in student accommodation extends far beyond prospective undergraduates; it’s front-of-mind for many investors too.
Within the alternative property sphere, student accommodation has developed rapidly in recent years into a desirable asset class in its own right. Given that higher education tends not to be affected by cyclical market changes and demand for student housing far outweighs supply in most key university markets, the sector has proved itself to be resilient with many market commentators highlighting its excellent future potential. This robustness, paired with the higher returns available than with standard buy-to-let property, has seen the student accommodation sector experience record levels of investment on a global scale. Further, PwC’s recent Emerging Trends in Real Estate Europe report reveals student housing to be the top niche sector being considered for investment in 2018.
While the UK continues to be an attractive jurisdiction for commercial real estate investment despite the Brexit vote and the proposed changes to the taxation of gains made by non-residents, investors are becoming increasingly global in their outlook. At First Names Group we’ve seen a number of our real estate clients looking to diversify their portfolios internationally, and most notably in the student accommodation sector.
The appeal of the European city
In our experience, cities rather than countries are being chosen for acquisitions and developments and this is largely based on the quality of the universities. In the last six months alone, First Names Group has worked on several site acquisitions in Europe, the main ones being in Ireland (Dublin and Cork) and Germany (Berlin and Frankfurt). The UK market is extremely competitive and, as such, experienced investors are exploring new jurisdictional opportunities, often in markets where they have had little or no previous investment experience.
Germany is receiving a particularly high level of investor attention at the moment, both in terms of student accommodation and commercial real estate as a whole. In the aforementioned PwC report, Germany accounts for four of the top ten cities for 2018 real estate investment, with Berlin taking the no.1 spot. In 2017, the country’s annual real estate investment volumes rose to US$60.2 billion, signifying the sixth successive year of growth.
Meanwhile, last year Savills reported that Germany’s student housing investment volumes alone had grown by a staggering 380%. The strong market for purpose-built student accommodation (PBSA) in Germany is due in large part to its current limited stock, with many students instead living in studios or apartments, and this undersupply is sure to become more pronounced as international students flock to the country. Beyond Berlin and Frankfurt, we’ve also recently been working to ascertain possible opportunities for student housing in Cologne, Hamburg and Munich.
Similar to Germany, Ireland is also experiencing record levels of investment. In line with our own experience, both Dublin and Cork are receiving the lion’s share of interest, with prime rents in Cork set to increase by 10% in 2018 according to CBRE. PwC’s research quotes a pension fund manager who commented, “Student housing is something that has been big in the UK, and now Ireland.”
Certain cities in Spain are additionally expected to offer interesting opportunities for investors given the quality of the universities in Barcelona, Madrid and Valencia. Madrid is another of the cities featured in PwC’s top ten.
Opportunities ‘down under’
Outside of Europe, we’ve been seeing heavy investment in Asia-Pacific developments, particularly in Australia. Australia is the third most popular destination for international students, driven by conducive visa regulations and a reputable education system. According to Savills’ Australian Student Accommodation Market Report, Australia’s eight principal cities collectively offer 71,645 PBSA beds. However, this supply equates to less than 11% of the full-time student population in each city, with the exception of Canberra (28%).
Savills identifies Sydney as the most attractive Australian market for investment into the student accommodation sector, owing to its “significant supply and demand imbalance, world class universities and status as a global city”. PwC’s Emerging Trends in Real Estate Asia-Pacific report, which examines the Asia-Pacific region as a whole, similarly ranks Sydney as number one in terms of its 2018 real estate investment and development prospects, while fellow Australian city Melbourne comes in second for investment and third for development.
With student populations growing in Germany, Ireland, Australia and worldwide, the potential for student accommodation investment and development is vast. At First Names Group we expect to see more and more diversification in this space and will continue working closely with our clients in the sector to identify and realise new opportunities across the globe.
Stuart Pinnington is Managing Director of First Names Group’s Corporate service line and part of our international real estate team. A corporate funds lawyer by background, Stuart has considerable experience in structuring new real estate funds as well as supporting existing fund managers with their continued growth. He currently sits as a non-executive director on a number of real estate funds and structures based in the UK, Luxembourg, Channel Islands and Cayman Islands.
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This article has been issued by First Names Management Limited on behalf of certain companies that form part of the First Names Group. The article has been prepared for general circulation to clients and intermediaries, and does not have regard to the particular circumstances or needs of any specific person who may read it. Nothing in this article constitutes legal, accounting, tax or investment advice.
The information contained in this article has been compiled by First Names Management Limited and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of publication, and are provided in good faith but without legal responsibility.
