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Spotlight: World Student Housing 2016/17

Student housing has grown from a niche investment opportunity into a global asset class

Over the last three years that we have been preparing this annual report we have seen the flowering of student housing as a fully-established global real estate asset class.

Student housing is a pioneer sector, showing us all how a niche specialist and opportunistic property investment can become part of the mainstream. It is particularly instructive to observe its transformation as it is probably the first of many higher yielding alternative sectors to benefit from a worldwide hunt for income. This shows little sign of abating as central banks continue QE and a regime of low interest rates.

Understanding, managing and monetising income streams can be a lucrative business. In the UK market, early adopters of student housing have sold at a substantial profit to the institutional investors who have dominated the market over the last 18 months. Other residentially related asset classes may yet follow the trail that student housing has forged.

Student housing in Lille, France

▲ Student housing in Lille, France


SUMMARY POINTS

INVESTMENT

 2015 was a record year for investment in student housing with $15bn invested globally in the sector. The first half of 2016 saw lower total volumes but mainland Europe continued to rise off a low base.

 US and UK student housing REITs outperformed their all REIT indices by 19 and 16 percentage points respectively.

 Global cross-border investment in the sector accounted for 40% of all deals in the last three years as international investors sought to diversify portfolios.

DEMAND

 Trends in student enrolment are diverging, with strong growth recorded in Australia, Germany and France.

 China remains the largest outbound market, almost four times the size of India, the next largest. Demographic forecasts suggest Nigeria and Saudi Arabia will grow in importance in the next decade.

 US cities are by far the most expensive in which to study and live, followed by the UK and Australia. The cost advantage of mainland Europe is clear for students. German cities offer exceptional value for both domestic and international students.

 English taught programmes are being used as a tool to attract more international students to European markets. The Netherlands leads the way in this.

SUPPLY

 Supply, even in mature markets, remains low. Provision rates range from 24% in the UK to 6% in Australia and Spain.

 High land prices in top tier cities are a major barrier to new development, as is the competing demand for land from a range of other asset classes, particularly residential.

 Opportunities for expansion into new markets have never been greater, but understanding and adapting to local markets is essential.

 In mainland Europe, new development will lead sector expansion given the limited amount of standing stock.

 To date, most private operators have successfully targeted the premium market. There is huge untapped demand at the lower price points, but high development costs impede this in many cities.

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