Student housing has grown from a niche investment to a global asset class in recent years, with investment hitting a record high in 2015.

Last year saw investment hit $15 billion in the global sector, according to Savills, which highlights how Student Property has bloomed into a fully-established asset class, not just in the UK, but around the world.

The first half of 2016 saw lower total investment volumes, but mainland Europe continued to rise off a low base, while US and UK student housing REITs outperformed their all REIT indices by 19 and 16 percentage points respectively.

Global cross-border investment in the sector has accounted for 40 per cent of all deals in the last three years, as international investors seek to diversify portfolios.

“Student housing is a pioneer sector, showing us all how a niche specialist and opportunistic Property investment can become part of the mainstream,” comments Savills. “It is particularly instructive to observe its transformation as it is probably the first of many higher yielding alternative sectors to benefit from a worldwide hunt for income. This shows little sign of abating as central banks continue QE and a regime of low interest rates.”

Trends in student enrolment are also diverging, with strong growth recorded in Australia, Germany and France. China remains the largest outbound market, almost four times the size of India, the second largest. Nigeria and Saudi Arabia are expected to become increasingly important in the next decade.

With student enrolment rising in many locations, a lack of supply remains the underpinning factor of the sector’s success. Indeed, even in mature markets, supply remains low, with Savills pegging provision rates at 24 per cent in the UK, ranging down to 6 per cent in Australia and Spain.

“Understanding, managing and monetising income streams can be a lucrative business,” adds the firm’s research. “In the UK market, early adopters of student housing have sold at a substantial profit to the institutional investors who have dominated the market over the last 18 months. Other residentially related asset classes may yet follow the trail that student housing has forged.”

Student property resilient to Brexit effect

5th July 2016

The student property sector is Brexit-proof, according to experts, who believe that the industry will prove resilient to the fallout of the UK’s EU referendum vote.

The impact of the Leave vote has been much debated among property professionals, from the weakening of the pound in the hours following the result to the appeal of overseas destinations for those who voted Remain. Those who invest in student property, though, can rest relatively easy, note industry experts.

The Board of Empiric Student Property announced its trading update last week, highlighting an “exciting six months” for the company.

“We are not in a position to determine exactly what the consequences will be for the higher education sector in the UK, however, we believe that the impact on the operations of the Group will be limited,” said the company.

Indeed, EU students represent only 6 per cent of all full-time students in the UK, due primarily to the historical cap on the number of EU (including UK) students, as well the higher overall cost of studying in the UK (albeit subsidised) compared to continental Europe. For each EU student accepted, meanwhile, there were 7.3 applications from both the EU and non-EU, while for each non-EU student, 7.9 applications were received.

Demand is certainly still strong for housing: since the 1990s, the student population has almost doudled, with the government forecasting the number of people studying at UK universities to increase significantly by 2020.

Therefore, the board argues the UK’s higher education system is not dependent on this portion of the market.

“While students from the EU may be subject more stringent visa requirements and higher fees, there is strong demand from other international students and the potential long term devaluation of Sterling would make the UK more affordable for international students. There is also a significant increase in expectations of an interest rate fall which would be to our benefit,” added the company.

“We believe that the higher education sector and, by implication, the student accommodation sector will prove resilient, a view echoed by property market experts such as CBRE (the Group’s property valuers) and Knight Frank.”

Indeed, new research from CBRE before the referendum predicted that the student accommodation sector would be the most resilient.

“The student accommodation market will potentially prove more resilient to Brexit than commercial property, where there is considerably more uncertainty around occupier decisions,” said CBRE. “If the rental market remains stable, the student accommodation investment market is likely to follow suit and prove less volatile.”

James Hanmer, director of student accommodation at Savills, told Property Sales: “People still want a degree from a UK university, and that’s not going to change.”

CBRE noted that international investors still consider the revenue stream from student property to be “strongly diversified” enough to remain attractive, highlighting deals such as Mapletree Investments (who moved into student housing in 2015) buying the Ardent UK student portfolio for £417 million in March 2016.

Paul Hadaway, Chief Executive of Empiric Student Property plc, commented: “Empiric has experienced another exciting six months and we are particularly pleased that a significant number of assets which were under development have reached practical completion or are on schedule to reach practical completion in the next few months, in time for the 2016/17 academic year, with the resultant uplift in rental income and valuation. With the Brexit result, we can expect some market volatility over the foreseeable future but we are confident that our business model will prove to be robust.”