Transactions in the Student Housing Market

Our expert, Anthony Hart recently contributed to the StuRents Annual Report 2019, commenting on transactions in the Student Housing market and looking at what the year ahead has in store.

Not a week goes by without another significant – and often headline grabbing – student deal hitting the property press. Despite obvious political uncertainties, investment in this sector is very evidently ploughing on.

But there is one characteristic of the student market that is at odds with its political resilience – sensitivity. Whilst 2019 carries the potential to deliver the highest ever transaction volume in the history of the UK (owing largely to Unite’s pending £2.2bn acquisition of Liberty Living’s portfolio), there are, to put it bluntly, deals experiencing very shallow investor appetite.

So to describe the sector as totally buoyant wouldn’t reflect the state of events on the ground. Its investors and its main market driver (the student) both share the same flight to quality and as a result, they are both institutionally sensitive.

Students are paying a lot for their education, so naturally they want to maximise value by attending the best universities. Because of this, the investment market has taken a major sway towards well-regarded institutions – which doesn’t simply mean Russell Group destinations alone, as is all too often assumed.

Popular regional centres continue to perform well. But site sensitivity is taking a hold in what are fast becoming maturing markets. Whilst there is strong demand, it is true to say competitive tension is only really a characteristic of the very best located opportunities.

And then there’s the anomaly – London.  London doesn’t suit all investors and if your target NIY is >4.5% it’s really a non-starter. But the appetite is relentless, driven by the bourgeoning demand created by the lack of beds subsequent to well documented planning constraints and thus the lack of available sites. The attractiveness of studying in the capital doesn’t show any signs of waning and many of its HE institutions continue to receive applications far outweighing acceptances. No development or investment is risk averse, but Student investment in London goes close, as was demonstrated by Greystar’s high profile acquisition of Paul Street East in Shoreditch; a direct-let deal that is said to have demonstrated a NIY of 3.5% (assuming quoted rates).

In contrast, many secondary regional centres have been plagued by the availability of vast swathes of cheap land, spiking the delivery of accommodation creating surplus beds and lengthy periods of absorption. Some food for thought however; rising build costs will limit the delivery of new bed spaces in secondary regional centres as headline rental levels fail to support development appraisals. Perhaps this will create some value for stabilised, well performing stock as investors appreciate the benefits of limited future supply.

Looking forward

It will become increasingly difficult to make market generalisations across the student sector such are the intricacies of each HE destination. There will be further trading of large scale portfolios, continued influence from the Far East and a growing trend that will bring value-add opportunities to the fore. Scrutinising data to inform decision making has never been more important; this should include analysing the power and competition brought by the HMO sector. Which, incidentally, will continue to smarten up its act offering a credible alternative to PBSA. Affordability will continue to be widely discussed but quite what the solution is amidst rising and already expensive build costs will be further debated. Perhaps we will see more repositioning of first generation stock to plug the affordable gap but this isn’t as straightforward as it might sound. The recent government announcement to reintroduce two-year visas to international students has been well received by the student housing sector. This will likely boost confidence for further growth of international student numbers in the UK.

StuRents

StuRents is one of the leading proptech partners in the UK student accommodation space. Their annual report covers topics such as rental growth, student budget and enquiry data, changing levels of supply and demand, and more. Covering both houses in multiple occupation (HMOs) and purpose-built student accommodation (PBSA) the report provides an update on the current state of the market, whilst also analysing future trends.

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