When it comes to real estate, the UK has always been one of the favorite European markets for investors and purpose built student accommodation ("PBSA") has been a sought after asset class in the last few years.
Real estate firm JLLreported that construction volumes have fallen 25% over the last three years. After adding an additional 32,000 new beds in 2019, there are a total of 650,500 beds in the UK student housing market.
However, JLL also projects that an additional 500,000 full time students will be attending university in the UK by 2030, pointing to a potential 75% rise in demand over the next decade.
As any Economics 101 student would tell you, rising demand (students) and falling supply (housing) make for an especially attractive real estate investment opportunity.
Demand for lower quality, older university housing is quickly being replaced by students choosing higher quality, newer private sector beds. Today, 87% of all new beds are coming from the private sector. Best of all, for students, the choice is obvious, as private sector housing is just slightly more expensive than that provided by universities.
Further buoying demand is that international students – and undergraduates in particular – remain attracted to studying abroad in the UK due to the high quality of its universities. Data from the Organisation for Economic Co-operation and Development ("OECD ") show that the UK hosts more than 432,000 foreign students, second only to the United States.
These factors have drawn growing interest from investors. Digital media company Bisnow reports that £4.5 billion of deals in the UK were either transacted or were under offer through the first nine months of the year, outpacing £3 billion in 2018.
This investment is coming from all over the place.
Singaporean media giant Singapore Press Holdings ("SPH") has even gotten involved, as it diversifies out of its legacy media business and into various forms of real estate.
SPH recently acquired £448 million of UK student housing, more than doubling its exposure to the market. It has focused on beds near the UK's top universities – Cambridge and Oxford in particular – as well as other areas where demand has continued to exceed available supply.
Singaporean property developers Far East Orchard and Mapletree Investments recently purchased £67 million and £96 million worth of UK student housing as well.
Of course, like any other asset class – whether it's precious metals, equities, or real estate – two big questions persist today: What will U.S. President Donald Trump do next, and what effects will COVID-19 have on the market?
Trump's continued escalation of trade wars with China and anti-immigration policies have made it more difficult (and less appealing) for Chinese students to study abroad in the U.S. Inevitably, the majority of those students will end up in the second most popular study abroad locale, the UK.
The coronavirus has had a widespread effect on all walks of life, from the way we travel to the way we shop, and for students, the way they study. Certainly, questions surrounding international travel could weigh on the enrollment of international students over the next few months.
Many UK universities have no idea whether they will be able to open the fall semester on time, or if they will be forced to host their classes virtually to begin the school year.
According to the BBC, many UK universities have already allowed applicants to delay their decision until the middle of June. And in Scotland, the University of Aberdeen became the first to delay its opening this fall. The school plans to start its academic year two weeks late.
However, the increased focus on proper social distancing could lead to a rise in demand for single unit and studio apartments among enrolled students. These units, which have their own kitchen and restrooms, tend to command a higher rent per tenant than apartments with multiple tenants.
There are PBSA developments in the UK currently offering guaranteed returns of between 8% to 9% upon completion of the project. Typically these rental guarantees are for tenors of between 3 to 5 years. The rental guarantee will somewhat mitigate the current risk of uncertainty in the real estate market globally.
How can investors leverage on such opportunities?
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