Investors home in on Brexit-proof UK student housing sector
Investors appear undeterred by an unsettled political and economic environment, even at a time of competition.
The UK’s student housing market is proving resilient at a time of uncertainty around the country’s economic prospects, with Asian investors leading the way.
While the focus remains on next March’s cut-off date, the impact of Brexit on the sector’s appeal to international investors has been debated ever since the UK voted in 2016 to leave the European Union. But, Asian investors in particular appear undeterred by an unsettled political and economic environment, even at a time of competition among domestic sector specialists, private equity investors and institutional capital.
“There has been significant interest and activity from Asia,” says Philip Hillman, JLL Head of Alternatives, UK. “UK student housing is rightly regarded by Asian investors as a defensive asset class.”
Malaysia’s Kumpulan Wang Persaraan (Diperbadankan) (KWAP) recently made its UK student housing debut, buying two assets in Birmingham and Edinburgh respectively close to University College of Birmingham and the Edinburgh Education Corridor.
In September, Singapore Press Holdings (SPH) entered the sector, ploughing £180.5 million (S$321 million) into a pan-UK portfolio. SPH, not known for its overseas acquisitions, joins the likes of fellow Singaporean investors Centurion and Mapletree in the sector. SPH, which said it expects sustained demand for UK student accommodation from both domestic and international students, follows in the footsteps of Singapore sovereign wealth fund GIC, a long-term investor in UK student housing, having entered a London joint venture with sector specialist Unite Group in 2012. The partnership, focused on development projects, is in place until 2022, some 17 years after GIC first entered the UK student housing sector via the Unite Capital Cities vehicle.
Applications from EU students for places at UK universities may have been affected by the political climate, dropping by five percent since 2016, according to the UK’s Universities and Colleges Admissions Service (UCAS). However, EU students represent just six percent of the UK’s international students, while the number of non-EU students is up 11 percent. China increased its number of applications for UK university places by 20 percent between 2017 and 2018, while the number of Indian students in the UK was up 36 percent over the same period.
A spread of student nationalities is a good thing for investors, Hillman says.
“When a typical student housing scheme has as many as 50 nationalities in it, that’s also a great diversifier,” he says. “For investors, rental income coming from such a spread around the globe means very little risk if one particular nationality faces an economic downturn back home.”
Investors with a focus on London will enjoy the added benefit of capital growth in one of the world’s most desirable real estate markets, says Hillman.
“International investors putting capital to work in London student housing know that they are also getting access to real estate in the center of a global city,” he says. “Thinking beyond a building’s current use is perfectly normal – it’s a London real estate deal as much as it’s a student housing purchase.”
London, says Hillman, offers investors some of the UK’s “best-in-class” student housing, with the city rated top for students globally by QS Ranking in 2018.
Although at the back of many investor’s minds, it’s been a case of business as usual since the Brexit vote. UK listed sector specialist GCP Student Living, which has a focus on the UK capital, recently said it had seen no detrimental impact on its portfolio from Brexit negotiations.
“Education remains one of the UK’s most valuable exports and London remains a cosmopolitan, global center of academic excellence,” the investor’s chairman, Robert Peto told shareholders.
Even in economic downturns, the sector can prove “counter-cyclical”, Hillman says, with higher education enjoying greater appeal during periods of lower employment.
“It’s considered alternative – but “alternative” in the sense that it is driven by demographics rather than by investment cycles.”
Hillman, who foresees more international investment, says that despite concern among lecturers and researchers over the outcome of Brexit, there is no reason to doubt the appeal of the UK’s growing student housing sector.
“International students and international investors seems like the perfect match,” he says. “We will undoubtedly see more of both.”