Investment into the global, purpose-built student accommodation market has seen rapid expansion over the past 24 months led by record investment levels in the UK and US. Some key European markets have also seen significant growth, including the Netherlands and Germany, while cross border investment volumes in 2015 reached new highs.
With low correlation to the traditional real estate asset classes, student housing has proved effective in diversifying property portfolios. Low void rates, a robust demand base and attractive yields have helped to cement its appeal. Yield compression in the sector is now being observed, and maturing of the sector has brought a shift in investor type. Private investors, who historically have been the most active, are giving way to established institutional players.
After a record breaking 2015 when $14.9bn was globally invested, volumes eased slightly in the first part of 2016. The UK was the stand out market last year, the recipient of some $7bn investment as several large portfolios came to market.
UK volumes up to August 2016 (including funding, development and investment) stand at £1.9bn ($2.5bn). The UK market remains fragmented so further opportunities for consolidation exist. We anticipate that further consolidation via mergers and acquisitions will be one of the defining features of coming years.
Meanwhile the US saw a pick-up in activity in the late 2015/early 2016, reflecting growing US real estate investment volumes across all sectors. Some $5.4bn was invested in the US student housing sector in H1 2016 ($8.1bn in the year to Q2 2016). The US student housing market is by far the most mature globally, supported by a student population in excess of 20 million. An increasing international student population and limited supply in core city markets should sustain demand for student housing investments in the medium term.