REAL ESTATE – There’s been a warning over the possible pitfalls of student accommodation as an asset class from a partner at real estate consulting firm Knight Frank.
Speaking at a conference in London recently – ‘REITs: An opportunity for investors and universities/colleges’ - Marcus Roberts said: “The first is that the increase in student debt due to changing fee structures may encourage more students to stay at home.”
The university property market is worth around £15bn (€21.8bn), according to the British Property Federation (BPF).
Liz Peace, BPF chief executive and chair of the conference, said that many students would want to be in a secure well-managed hall of residence in their second and third years which would increase demand. However she added that “we don’t know the impact on student inclinations of fee structures which may have the opposite effect”.
Knight Frank partner John Styles pointed out that while individual universities should be able to identify the minimum three assets required by the REIT investors are likely to require more diversification. “So it might be better if assets were aggregated across the country,” he said.
But how would this work? James Hunt, financial director of the University of Leicester noted that “universities are not good at cooperating with one another”.
One of his counterparts at another UK university said that universities would require significant economies of scale for this form of financing to be cost-effective.
Styles pointed out that the cost of borrowing enjoyed by universities is currently lower than a privately constructed REIT.
Another cost which universities will have to bear in mind will be what PWC’s Rosalind Rowe described as a “pretty super maintenance programme”. She added: “In the past they could have got away without a new coat of paint here or replacing a piece of kit there. But no longer.”
But the mood regarding the future of the education sector as an asset class was generally upbeat. Roger Blears, partner at law firm Martineau Johnson, said university property represents an “unusually predictable rental stream so it should carry its own premium in the market”.
Brian Lee at law firm Ogier said that local authorities have shown significant interest in this as an asset class.
Styles noted that “institutions have a strong interest in this asset class due to the good recent track record of this asset class with high yields is a benefit as is the indexation which is common with student accommodation leases.
