Substantial opportunities to invest in student accommodation exist outside the UK but vary considerably by country, as Richard Lowe reports
The UK market for student accommodation is the largest in Europe, with the number of student beds estimated to outstrip those in all the rest of Europe. However, developers are looking to transfer their expertise to the continent, where certain countries offer a number of opportunities.
"There has been a sea change in the UK that has allowed developers, operators and funders to develop an expertise that is unrivalled in Europe now," says Richard Collins, director for education and economics at DTZ.
Europe, it seems, "represents a considerable area of interest for a number of them", including DTZ itself.
Peter Hobbs, head of global real estate research at RREEF, agrees there is much scope for UK providers to export their business models to the continent.
"We will start to get more pan-European opportunities," he says. However, prospects in Europe outside the UK are very much a mixed bag. "There are huge variations across Europe in terms of the opportunities, the potential, the size of the market," Andrew Allen, head of research and strategy at Cordea Savills, agrees. "It is fair to say there isn't any one model followed in Europe," he says.
Italy and Spain are two examples where prospects are limited. While there is a tradition for young people in the UK to move away from home when they study at university, students in Spain tend to study at local universities and continue living with their parents, Allen suggests. And while Italian students are more prone to moving away, they are more likely to move into private flats, with student halls limited in number.
Germany has a much more substantial market, but the country's accommodation is largely subsidised and rental values are therefore low. Having said this, Hobbs believes this may well change over time, but he predicts "it will take a long time before you can start to get to a market rate".
The most developed markets on the continent are to be found in France and the Nordic countries, where the best opportunities most likely exist.
Looking farther afield, India is one to watch for the future. The country has a need for the development of its higher education infrastructure, says Hobbs - something private sector developers and institutional investors could provide.
"Given the stage of development of Europe and
the US, it's not needed - we don't have that demand or pressure," he says. "But the supply is so limited
in a country like India where the provisions have
not been the same as China. There is a big opportunity I feel for private provision of entire university campuses."
There is, of course, a student accommodation market to rival the UK in terms of maturity and size. Like the UK, demand growth in the US, spurred by demographic and university attendance trends, has not been matched by an adequate supply of student housing.
In the UK, the current boom in the numbers of 18-21-year olds in the country is forecast to peak in 2010-11 before decreasing significantly over the next decade by 12%, according to the Higher Education Policy Institute. However, this is offset by a growth in the socio-economic groups that historically are more likely to enrol at university.
In the US, the demographic picture is not dis-similar. RREEF research shows that the student population is rising twice as fast as the total US population, and attendance is growing among the types of students more likely to seek "institutional-quality" student housing - that is, typically, full-time female students, attending four-year courses at public universities.
The majority of US universities are public schools that have little in the way of financial resources to apply to student housing and where there is less of a tradition of students residing on campus - as is more the case among private Ivy League institutions.
"It is in the public schools - the Universities of California or Florida or Texas - where there are much bigger opportunities and there is less of tradition of having their students reside on campus," says Andrew Nelson, vice-president of research at RREEF.
"Also these schools are increasingly stretched for capital and they are therefore out getting more resources for the core mission of the university - whether that is research, putting up labs, libraries or classrooms - and relatively little into student housing, because they realise correctly that the private sector can come in and create that for them pretty easily.
"A lot of the new accommodation going up doesn't even have a formal affiliation with the university - these are built totally on a speculative basis. Informally, it leaves the universities to devote spare capital to housing and therefore to allocate more money to the core missions."
And while the UK market is served by a number of institutional funds, exposure to the US student accommodation sector can be gained through several dedicated real estate investment trusts, including American Campus Communities, GMH Communities Trust (which also contains military housing), and Education Realty Trust. These vehicles have all resulted in making the market "more transparent", Nelson says.
The US student accommodation investment market has grown substantially during recent years, with investment volume increasing from virtually nil in 2001 to close to $2bn (€1.36bn) in 2005 and 2006.
"It is undoubtedly still a rather small slice of the investment market compared with the opportunities in residential real estate overall," Nelson says.
"But it is growing and certainly has the attention, increasingly, of the institutional investment world, because there are some very compelling demographic stories there and good opportunities to serve a market which traditionally has been served by rather small under-capitalised players."
Furthermore, Nelson adds: "There is very strong student growth and increasing matriculation rates that translate into strong and growing demand."
