Student housing has become an increasingly popular alternative asset class for investors. But it has been the opportunity to buy large portfolios from collapsed Opal Property Group that has really put the UK on the global student accommodation map and attracted a surge of new international buyers to Britain.
Transactions in the UK student accommodation market between January and mid-November reached £1.6bn, according to CBRE. Of this, at least £987m came from international bidders making their debut here. The figure was 10% higher than the £896.6m spent by new foreign parties last year.
So why has the UK’s student market become more attractive to nations far and wide, and will non-British companies continue to be as dominant in 2014?
Outperforming asset class
CBRE says the domestic student housing market is outperforming a number of other asset classes. It showed returns of nearly 10% in the 12 months to September 2013, higher than IPD total returns on offices, industrial and retail.
Jo Winchester, head of student housing advisory, says: “The UK student accommodation market continues to attract global capital, offering steady returns, future rental growth prospects and the UK’s generally favourable commercial and regulatory climate, which is investor-friendly compared with other parts of Europe.”
Average weekly rents in London have soared by 50% over the past five years to £177, Deloitte Real Estate has calculated. Outside the capital, during the same period, rents have increased by £23 to £114 per week.
New entrants this year include Greystar and Avenue Capital – two of four US companies trying to make their first UK purchases (27 July, p25) – and the Chinese state-owned Gingko Tree Investment, which bought a stake in £1.4bn student accommodation development company UPP.
There were circa 17,500 beds up for sale this year from collapsed Opal, which failed to refinance its near £900m debt with several lenders ahead of a 1 March deadline.
Philip Hillman, lead director, student housing at Jones Lang LaSalle, advised South Carolina-based Greystar on its £300m purchase of 7,100 Opal beds.
He says: “Greystar, like a number of US parties, was looking for critical mass and good geographical spread because it wanted to make a significant UK launch.”
Greystar said at the time of completion that the purchase would serve as “the foundation of a broader investment that we intend to make in the UK student accommodation market over the long term”.
It was not only US parties going head-to-head with Greystar.
“Approximately half the bids on the portfolio we sold were either financed by, or came directly from, overseas parties,” says Ernst & Young real estate corporate finance director Fergal O’Reilly, who managed the sale to Greystar.
“The overseas bidders came from countries including the US, Australia and the Middle East,” he adds.
Dutch and South Korean funds are among other investors making attempts to buy in Britain, Hillman says.
The diversity of investors targeting the UK student market has been matched by the diversity of lenders willing to back them.
Several major lenders have either made their debut student housing loans this year or re-entered the market for the first time this cycle.
Deutsche Bank and Renshaw Bay refinanced three student blocks in the North of England owned by Abanar; serial student lender Investec teamed up with LaSalle Investment Management to back a £100m SCAPE scheme in Shoreditch; and Goldman Sachs funded Greystar’s UK debut, advised by Macquarie.
Meanwhile, a number of other deals are likely to transact before the year-end.
Another 4,359-bed Opal portfolio is believed to be under offer to Australian firm Campus Living Villages – one of a number of Southern Hemisphere firms looking to Britain, claims Sydney-based Conal Newland, director of student accommodation services at JLL.
“At the moment in Australia, student accommodation is mainly in a development phase, so coming to the UK [student housing firms] are attracted by trading assets that will give them instant capital income. Also, global investors have noted the high volume of transactions over the past few years, so it is a very attractive liquid market in the UK,” says Newland.
JLL has calculated that of the £540m of student housing assets currently under offer, around 85% is under offer to overseas investors – many of which would be new entrants.
If the deals go over the line before the end of the year, full-year turnover will smash through the £2bn barrier. Although there may be fewer trophy student housing portfolios on sale now, international buyers are still finding a way to make purchases and cash in on the lucrative sector.