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Philip Hillman, Chairman, JLL's Alternatives team outlines his predictions for the student housing sector in the year ahead.
"With circa £5 billion of UK student housing transactions in 2015, the sector proved itself to be of global interest to investors, attracted by growing student numbers (especially international students), strong demand and steady rental growth.
"In the previous 3 years, transaction levels had been circa £2 billion pa. So what is the outlook for the sector in 2016 and beyond?
"Almost 30% of the value of UK purpose built student housing stock (excluding university halls) traded in 2015. Much of this was driven by a rush to obtain critical mass in the sector by overseas entrants who first came into the sector in the last couple of years. Many of these players now have secured an operating platform and a 'core' portfolio, so in 2016 most of them will focus on more modest additions to their portfolios - not least as there a relatively few portfolios left to acquire.
"A number of operators will be reviewing their recently acquired or enlarged portfolios and identifying any non core assets that might be suitable for disposal.
"We anticipate circa £2.5bn to £3bn of transactions in the sector in 2016, with about £2bn of these resulting from portfolio sales.
"We are still seeing new international entrants coming to the market; a mix of opportunity funds, private equity and institutional investors.
"Many who have recently invested in the UK are now also looking carefully at opportunities in Ireland and on mainland Europe. Their interest includes private rental sector (PRS) opportunities - we anticipate closer links between student housing and PRS in the UK & Europe in 2016. Further involvement by these players in sectors such as Retirement Living also seems inevitable.
"In the US, many operators are active in both the 'Multi family' and Student sectors. The combined sectors are the largest institutional property investment sector in the US.
"The growing appeal of Alternative asset classes (including student housing) to global institutional investors will continue to see new investment in the UK student market.
"One area we see particular opportunities in is the Higher Education sector. Universities still own some 300,000+ student beds, many of which do not meet the current standards. As universities become increasingly commercial in their outlook, as they operate in a competitive environment themselves, they will be looking carefully at the quality of their residential offer as well as the income & capital receipts they can generate."
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