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Student property still attractive post-covid

Student property still attractive post-covid

Private equity firms are stepping up their investment in the sector

Student property was once an investor favourite. The UK’s array of prestigious universities attracted swathes of students from across the globe, contributing to its second largest international student population. Demand for bed space outstripped supply, and according to Cushman and Wakefield, this led to rental increases in en-suite student accommodation tracking 16% above the rate of inflation since 2014. The high rental yields student property offered incentivised individual investors and funds.

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How did COVID-19 affect the student property sector?

Then COVID-19 hit, and the sector was plunged into uncertainty. Universities announced that due to social distancing measures, many lectures and seminars would take place online. The lack of face-to-face tuition meant many international students were tempted to defer entry as they already pay higher fees and felt they would not get value for money. Those who decided to embark on their studies, did so remotely. During the second lockdown, according to a survey conducted by QS in November 2020, 29% of international students were studying from their home country. For domestic students, it was not necessary to be on campus and so there was no longer a requirement for student accommodation.

UK student sector in 2020/21 – a more positive outlook?

Despite the challenges that the sector faced in early 2020, things looked a little brighter for the 2020/21 year with UCAS reporting that applications to UK universities from non-EU international students rose by 9.6% compared to 2019. The number of EU students fell by 2%, but this was mainly attributed to Brexit uncertainty. To keep in line with government social distancing regulations, many exams were cancelled in the UK and predicted grades were granted. This led to a bigger proportion of 18-year-olds getting the grades they needed to attend university and the number of domestic students going to university was 5% up on the year before. Overall, there was a higher number of students applying for higher education.

In 2009 there was a 7.8% increase in student applications compared to the year before. This was during the recession and it is indicative that in difficult economic times, many turn to education either to retrain or become better qualified than their competition as jobs are scarce.

The vaccine rollout has also injected more positive sentiment into the sector. According to a survey by QS, 61% of higher education professionals said it will make it easier to recruit more international students. 46% of those surveyed also said that it would allow for full face-to-face teaching within 12 months, with 21% giving a more ambitious answer of 6 months.

According to recent estimations, student applications are predicted to rise by 8.5% this year as the relaxing of social distancing measures will allow for a more familiar way of studying.

Private equity firms re-incentivised to invest

According to data from real estate advisers Jones Lang Lasalle Inc more than one third of deals for student property in 2021 have been financed by private equity firms compared with around 15% between 2016 and 2019.

Purpose-built student accommodation is already oversubscribed in the UK, and combined with a predicted rise in student numbers, more development is desperately needed. Assets such as offices, retail and hotels were badly hit during the pandemic, but the student sector has proven resilient and has bounced back quickly, and many funds are broadening their investment portfolio to include it.

Los Angeles based company Ares Management Corp invested for the first time in student property this February, obtaining two newly built units for £158m. Meanwhile Precis Capital Partners (formed by Daljit and Randeesh Sandhu and backed by Towerbrook Capital Partners) have pledged £50m to invest in property that will include developments in the student sector.

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Investment firms showing interest in student property reflects a positive outlook for the sector. The rollout of the vaccine and predicted increase in student numbers, combined with existing purpose-built student accommodation developments being oversubscribed means there is a good chance for high occupancy rates and in return good yields.

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