RESIDENTIAL: STUDENT LIVING
Nicholas Porter, chairman of Global Student Accommodation Group, explains why investors are lining up to fund purpose-built student accommodation across the globe*.
Student housing has come a long way in the past 25 years. The sector has grown into an asset class attracting tens of billions of dollars of investment from private and institutional capital sources
attracted to the healthy supply-demand dynamics and the stable income characteristics of higher education.As society has become increasingly knowledge-based,
higher education is now seen as essential to economic growth, with countries and multinational employers around the world competing to attract top talent from an expanding middle class. Rapidly changing demographic profiles, combined with increased student mobility and globalization, are all triggering the increase in demand for a high-quality university education.
Total annual student numbers are on an upward trajectory and expected to increase by 100 million before 2028. Furthermore, the Organisation for Economic Co-operation and Development reports that international enrolments are expected to grow from six to eight million a year by 2020 – an increase of 77 percent since 2000.
It is against this higher education backdrop that the PBSA market is thriving. Global investment reached a record $16.4 billion in 2016, and while historic activity has seen the US and UK dominate global investment, more recently, newer markets in mainland Europe and Asia Pacific are becoming more attractive to investors. Fuelled by strong supply and demand fundamentals, these markets provide private and institutional investors, as well as sovereign wealth and pension funds, the opportunity to invest in scalable, income-generating assets.
Entering new markets
Investors in student housing are in a unique position as they are able to foresee sustained demand and, unlike other asset classes, can track and monitor students entering university on a global scale. This allows a forward-looking approach to entering and investing in new and emerging markets.
Research and intelligence gathering is key to the investment approach in this sector. Extensive research is conducted before entering new cities and countries, including engaging with local students and universities, as well as building mock-ups of the accommodation students, their parents and universities can visit and provide feedback on prior to construction.
Building relationships and trust in the higher education sector is fundamental to ensure success. GSA, for example, establishes relationships with key universities to explain our approach and familiarize them with the concept of PBSA and what a difference it can make to the overall educational experience and to students’ lives. Ultimately, deeper partnerships with universities worldwide ensures GSA can continue expanding its business at pace.
Early entry into new markets such as Ireland, Dubai, Germany, Spain and Japan (where the PBSA markets are relatively immature) gives us a ‘first mover’ advantage. As such, it means that we have been able to innovate our offer and add scale within all the cities around the world where we operate. As a result, our operational portfolio in 2017 expanded by 75 percent and our total assets under management grew by over 30 percent.
The future of student housing
As the sector becomes ever more reliant on the private sector to provide PBSA, a continued focus will be placed on strong partnerships with universities to bring new products and innovation to market.
Furthermore, the characteristics of a high-income yield, stable capital growth and counter-cyclical characteristics will remain an attractive prospect for investors into the future. With interest rates forecast to remain low relative to historical levels, combined with investors seeking to diversify from more volatile asset classes, student housing is set to remain a growing area in property investment.
*[As seen in PERE, published in June 2018]