03 December 2014 | UK
As the UK’s universities once again see record numbers of students taking up places at the start of the 2014 academic year, where those students will live is of growing interest to another group: investors.
By Stuart Osborn
Student numbers in the UK have risen considerably over the last decade and 2014 saw record numbers of applicants. Despite changes to funding, the UK’s young people - and an ever-growing population of international students – are keener than ever to experience higher education. As the UK’s universities once again see record numbers of students taking up places at the start of the 2014 academic year, where those students will live is of growing interest to another group: investors. Investment in student accommodation for 2014 is set to break the £2bn level, continuing the record trend of the past two years. And there is a considerable pipeline of investment waiting to come on stream as well as over £2bn of opportunities currently in the market. What was once considered an alternative asset class has now become a major sector in its own right. Institutions that would not have considered this asset class a few years ago are now making sizeable commitments. JLL analysis shows that total investment in the sector is now in line with some traditional commercial areas such as retail warehousing. So what’s the attraction for investors and what are they looking for?
As ever, the answers depend on understanding the needs of particular investors and their appetite for risk. Many investors initially look at the leading
Russell Group universities and top 20 university cities - effectively the prime assets in this market - as an entry point. But as investors (such as institutional funds) become more comfortable with the dynamics of student housing, and they understand more about the strong and stable returns that the sector offers, this asset class is becoming an increasingly more attractive alternative to more traditional investments in commercial property. Indeed many investors are seeking to expand further into the sector and are identifying opportunities in less obvious locations further afield.
2014 has to date seen deals across the country of circa £1.6 billion in the sector. Highlights include the LaSalle Investment Management purchase of Victoria Hall, Wembley, the Campus Living Villages (CLV) acquisition of the Opal portfolio that includes properties across the country and more than doubles the number of beds that CLV has in the UK; the Cordea Savills disposal of their 2,900 bed portfolio; the Greystar Acquisition of the LSIP London portfolio and Blackrock’s acquisition of the Printworks, Exeter for £40m.
It’s not simply the scale of investment that is increasing; the diversity of its origins is expanding too. Overseas investors are moving in to the UK student market. International private equity and hedge funds have both been active, making some sizeable investments in 2014. For example, CLV’s’s acquisition of Opal was partly funded by Arlington Investors, an investment vehicle for major family office investors from the Middle East and we’ve seen Greystar and Avenue Capital continue their aggressive expansion into the sector.
As well as direct investment, there are also growing opportunities in development and refurbishment. As the cycle of student accommodation turns, there are new demands for higher quality fit outs that will continue to attract prospective students with higher expectations of quality than their predecessors of a decade ago. Overall, student accommodation is looking extremely healthy. Far from being an alternative, it’s a sector rapidly pushing roots into the mainstream.
Stuart Osborn, Senior Surveyor, Student Housing UK, JLL
Stuart Osborn is a senior surveyor in JLL’s UK-based Student Housing team and specialises in providing strategic advice to operators/investors, funds and private individuals on a range of services including disposals, acquisitions and funding.
Stuart has over six years’ experience in the student housing sector and is currently working on a number of high-profile single asset and portfolio deals across the UK and wider-Europe, with recent transactions including:
IP Global Portfolio disposal - 398 bed spaces totalling £46.5m.
Collegelands, Glasgow disposal- 588 bed spaces for £37m.
Disposal of the Network Rail Development Site at Queen Mary, University of London - 412 bed spaces proposed for c. £20m.
Slade Park, Oxford disposal - 374 beds for c. £30m.
Beach Student Accommodation Portfolio disposal - 2,417 bed spaces for c £100m.