2015 was a record year for investment in student housing when $15 billion was invested globally in the sector. Overall, in the past three years the student housing sector has accounted for 40 per cent of all deals as international investors seeking to diversify their portfolios have been attracted by the fact that US and UK student housing REITs have outperformed their All REIT indices by 19 and 16 percentage points respectively.
The first half of 2016 has seen lower total global volumes compared with 2015, but in mainland Europe investment levels have continued to rise off a low base. By the end of July, German student housing had attracted €350 million of investment – more than double the total invested in the whole of 2015 – while in France €345 million has been transacted in the year to August 2016.
Investors have been attracted by mainland Europe's strong investment potential. Its combined student population of 20 million, and the very low provision in some markets of purpose-built student accommodation (PBSH) despite growing demand from international students attracted by an increasing number of courses taught in English, place it on an upwards trajectory.
Looking towards the southern hemisphere, the Australian market is also attracting significant attention. There is strong growth potential in the country due to a disconnect between the high number of students looking for accommodation and a shortage of supply; at the moment there is only enough PBSH available to accommodate 6 per cent of the student population.
With Australia featuring in the list of favoured destinations in the world’s top outbound markets for international students (which also includes China and India), plus a fast-growing domestic population, student numbers have risen 40 per cent in the last seven years. With 30 Australian institutions appearing in the top 750 of the QS World University Rankings, up from 25 in 2012, demand is likely to continue and, as a consequence,significant new stock will be required.
Growing international student numbers are therefore set to secure the market for a premium PBSH product, but there also remains a huge untapped market for more affordable private accommodation. High land values and development costs will impede this in many markets, but upgrading of existing university stock or establishment of new models may be a route in.
In either case, student housing has proven itself to be a resilient asset class and, with its counter-cyclical fundamentals, many institutional investors will continue to turn to the sector where they can achieve strong occupancy and rental growth.
Read more: Savills World Student Housing Report