Rent levels and occupancy have held up well during the COVID-19 crisis this year, and the student housing sector, in particular, is operating at much more profitable levels than early lockdown predictions suggested, according to top institutional investors involved in the residential sector.
In a panel discussion session at the IPE Real Estate Conference & Awards 2020, Timothé Rauly, global head of fund management at AXA Investment Managers - Real Assets, said COVID-19 had been a strong reality check for the living sectors of the real estate market.
“I have to say that the resilience of the sector has been remarkable over the last few months compared to the other sectors, retail, office or even logistics,” he said.
The operational performance of large US or European residential companies was very strong, he said with only a minor impact from the pandemic being felt in occupancy rates and with rent collection reaching levels of 95% and above..
“Looking at figures available for student accommodation we can observe a very similar trend as well,” Rauly said, citing data showing pre-booking at US universities for next academic year was at 91% and above, versus 93% last year.
For Unite in the UK, the country’s largest student housing operator, pre-booking figures for the end of June were at 84% compared to 93% last year, Rauly said, adding that this was despite ongoing and difficult discussions on Brexit.
Joanne McNamara, managing director for Europe at Oxford Properties, told the virtual event that the performance of her company’s residential assets during the pandemic had been “pretty resilient”.
“Rental collections have been 95%-plus across our portfolio,” she said.
“We’ve had some downward pressure on the philosophy of renting new units, and the occupancy level has remained a bit lower than we were hoping for, however, we have record rent levels and take-up in June and July, more than 20% up year-on-year, so extremely resilient and we’re seeing a good comeback since lockdown has eased,” she said.
Michael Fuller, senior vice president, real estate at Brookfield Asset Management said, the profitability picture for residential assets looked very positive relative to some expectations of a few months ago – especially about international students not returning to the market.
“But it looks like even with some lower international student numbers, this may be a one-year blip,” Fuller told the audience.
Brookfield’s residential strategy was not changing as a result of the pandemic, he said.
“Our investment strategy in the sector is mostly based on long-term fundamentals, and generally less cyclical in terms of an approach, and the living sectors, particularly, are usually a bit more insulated to changes in the short-term business environment,” he said.
“You have to come back to some of the trends driving the sector overall, and I think those trends will continue.”
Meanwhile, fellow panellist Tom Jackson, managing director in Europe for Canada Pension Plan Investment Board, said he did not see COVID-19 as a catalyst for major secular change in the living space.
For instance, he said, some of the factors exerting pressure on the retail sector had already been there before the pandemic, notably the performance of footfall and the growth of online consumerism.
“In the office space frankly it’s too early to tell whether there will be material secular change […] and we’re not yet making a call in the listed space or the private space as to the future of offices yet,” he said. “On the living side, it looks like these sectors are likely to be more resilient.”