Student housing goes global with focus on development — JLL

GLOBAL – Australia and development will provide the best global opportunities for student accommodation investors as Asian demand drives outperformance of the asset sub-class in English-speaking countries, according to a report by JLL.

Noting a "chronic shortage" of supply despite forecast growth in overall student numbers to 263m in 2025 from 165m in 2011, the report claimed the Australian student accommodation market – about 10 years behind mature markets – created opportunities for early-mover advantage. 

Meanwhile, development will drive growth as a lack of government funding pushes universities into public-private partnerships.

The report also pointed to "strong potential for expansion" in immature continental European markets and consolidation in the fragmented markets in the UK and US.

In the US, on-campus near-obsolescent assets of up to 50 years old make up 29% of the market.

Private rented accommodation, which makes up 62% of the market, "is often of poor quality, obsolete, overpriced and without the required amenities".

According to the report, only 9% of the market meets demand for high-quality accommodation close to campus with modern amenities.

REITs own around 30% of the US student accommodation market, institutional investors own around 5%.

In the UK, UNITE and UPP between them own around 42% of the market, although institutions have been noticeably active.

Singapore sovereign wealth fund subsidiary GIC Real Estate and Dutch healthcare pension fund manager PGGM are partners in joint ventures with UNITE and UPP, respectively.

According to the report, by 2020, 7m students will be studying outside their home countries as a result of a demand arising from enlarged middle classes in China, India and Vietnam.

Yet despite positive demand forecasts, some investors have questioned market-specific returns, especially given downward pressure on yields as a result of increased competition for limited assets.

Robert Houston, principal at St Bride's Managers, told a recent IPD conference on alternative real estate that an increase in the UK population from 62.3m to 73.2m by 2035 would not include a noticeable increase in the student population.

A subsequent straw poll of the audience registered negligible interest in the asset sub-class, whose popularity fell far behind residential, infrastructure, healthcare and even hotels.