Student housing – at full maturity?
The purpose-built student accommodation (PBSA) sector is the most mature and liquid of the operational real estate markets, worth £51.2 billion today, Savills estimates.
Brexit concerns are weighing on activity. Investors placed £3.1 billion in UK PBSA in 2018, 19% down on 2017, but the price per student bed remains high, at £90,000. Some 35,000 beds are expected to trade this year, with a total value of £3.5 billion.
Total stock levels stand at 640,000 beds, against a total student population which has grown 9.7% over the past five years to around 1,844,500, despite Brexit concerns and competition from apprenticeships. EU students represent only 7% of student numbers, and recent rhetoric on immigration suggests the potential for demand from places such as the USA, China and India could mitigate any fall in EU student demand.
Portfolio consolidation over the past five years means that the sector is dominated by a few specialist players. With parts of the UK PBSA market looking fully supplied, Savills expects to see larger investors turn their attention to less mature markets across mainland Europe, such as Italy, Spain and Portugal, where demand is expected to be fuelled by growing numbers of students choosing to live away from home.
Build to Rent – huge growth potential
Build to rent (BTR) is a much newer sector, with enormous growth potential and many opportunities for new entrants. Currently valued at £9.6 billion, Savills projects it will be worth almost £550 billion at maturity, providing homes for over 1.7 million households.
The current value is less than 1% of the total of privately rented housing in the UK, which Savills research puts at £1.5 trillion. The majority of this value is owned by individual buy to let landlords, a sector coming under pressure from recent changes to tax and regulations.
Large-scale, institutional investors have only begun to make their mark on the sector over the past few years, Savills says. Despite similarities between PBSA and BTR, relatively few investors are active across both sectors, so there is huge opportunity for crossover, Savills notes. Goldman Sachs, Legal & General, M&G, Greystar, and Aberdeen Standard are among the few to have invested in both.
Peter Allen, Head of Savills Operational Capital Markets, explains:
“Given the similar challenges in development and management, we would expect to see more investors expanding their capabilities to cover the full spectrum of operational residential assets. Student housing investors have the potential to extend their brands into build to rent and use a strong track record in a very established sector to secure favourable finance terms to maximise opportunities in a newer, less mature sector.”
Retirement living – housing an ageing population
Retirement living is also expected to expand rapidly, both as a tenure and asset class. Institutions and REITs are already active in the care home market, but the scale of activity is growing rapidly. A market for retirement housing investment is now emerging, worth £120 billion today.
The bulk of the existing 730,000 retirement housing units across the UK is sheltered housing for social rent, built using grant funding in the 1970s and 80s. Much of the balance is made up of owner-occupied homes, built by specialised housebuilders such as McCarthy & Stone, who have recently started to offer rental options within their developments.
Craig Woollam, Head of Savills Healthcare, explains:
“Rules are still being written across this sector and a more investible market is beginning to emerge. Broad demographics, and an ageing population with vast stores of housing wealth, will underpin demand for well-managed, tailor-made housing options.”
Accounting just for today’s over-75 population, Savills anticipates that the retirement living sector could grow to 1.7 million homes at full maturity. This is an increase of 138% over current stock. Accounting for the tenure of this additional stock, the UK’s retirement housing sector could more than double in value to £260 billion at full maturity.
To put this figure into context, Savills has calculated the value of housing owned and occupied by the over 65s to be more than £1.6 trillion.