US investment volumes fall
The US student housing market has seen investment volumes decline from their 2012 peak of just under $4bn. Investors showed caution following a dip in enrolment numbers in 2013, cuts to federal student aid and a shrinking 18-24 demographic. Compared to the UK, and particularly to European markets, some core US markets are fully supplied with quality products, leading some investors to believe the sector now appears fully priced, with seemingly limited opportunities for rental growth.
The major US student housing REITs have underperformed the S&P500 and investment volumes are down by 30% in the past year. This comes in part as the largest of these, American Campus Communities (ACC), funds its future growth by disposing of older assets and focuses on those closest to campuses. In the past 24 months, ACC has disposed of $577.7 million of assets, mainly to existing players, and acquired $433million, according to Real Capital Analytics. Competition from other funds has also forced the major student REITs to consolidate and streamline their operations.
Domestic investors dominate the US market, with negligible cross border investment. Rather, North American investors are seeking opportunities in markets overseas and are the largest foreign investor in the UK student sector, accounting for 80% all cross-border deals in 12 months to September 2015.
International investment in mainland Europe
Having realised their gains in the UK, the entrepreneurs and pioneers of the student sector in the UK are now turning their attentions elsewhere. Student housing in mainland Europe is emerging as a highly investible proposition, and investment volumes are rising.
The Netherlands has seen average annual investment of $200m in the last three years. The majority of this investment has been private, domestic capital, but foreign investment is growing.
Big ticket deals in 2014 included a €150m ($165m) agreement between German-based International Campus and Dutch student housing association DUWO for five new student housing schemes. The Student Hotel secured €150m in funding from Perella Weinberg Real Estate and a further €100m from Dutch pension fund manager APG to expand its model across the Netherlands and beyond. Interest from national and international investors has contributed to yields contracting 25 basis points from 5.75% to 5.5%.
In France, growing investor interest combined with the limited available supply on the market has put downward pressure on prime student yields, which stand at 5.4%. Investment volumes remain small, with recent peaks recorded in 2010 and 2013. Domestic investors accounted for 72% of all acquisitions in the past three years. The balance came from the Netherlands (16%), the UK (7%) and Germany (4%).
A Savills survey of key student cities in France found that between 60% and 70% of existing student housing stock belongs to private investors or occupiers in split ownership structure, which is less accessible to institutional investors and property companies. As a consequence, investment activity is mainly driven by forward funding new schemes.
Germany, meanwhile, saw €220 million of investment in its student sector in 2014, more than twice the volume of the previous year. Some 90% of this was on developments yet to be completed. UK-based Crosslane were the first foreign player to enter the German market, while some domestic investors have been financed with international funds.
Spain has seen agreements reached by Knightsbridge Student Housing for the development of five new student halls of residence, focused on Madrid and Barcelona. At the end of March 2015, The Student Hotel (headquartered in Amsterdam) purchased two Barcelona student halls of residence leased under a long-term agreement to the operator Melon District for a total of around €41.5 million.