Student housing: More caution but no distress

Student accommodation is seen as a strong sector but banks are being cautious, delegates heard at Real Asset Media’s European Outlook: Student Housing investment briefing, which took place online recently.

‘Student housing has proved to be extremely resilient during the crisis, with most places open and generating cash,’ said Charles Combet, Relationship Manager, Vice-President Special Property Finance – Hotel & PBSA Properties, Aareal Bank. ‘Strong fundamentals and a good buffer for the covenants we have in place. In general, portfolios are doing quite well.’

More institutional investors have entered the student housing market, which is a sign that it is fast maturing.

‘We look at fundamentals and they are strong, so we are ready to finance investment in student housing,’ said Combet. ‘However, we are more cautious and conservative on investments compared to six months ago. Re-financing costs for banks have increased in most countries where we operate.’

The general picture is positive but banks are being cautious because the impact of the coronavirus epidemic on the sector is far from clear.

‘Many banks are already heavily exposed to other sectors that are experiencing difficulties like hospitality, so they are more inclined to preserve cash now,’ said Rob Waterhouse, Head of Transactions, Global Student Accommodation.

Development finance, in particular, is even harder to come by now as banks adopt a wait and see attitude. On the bright side, there is likely to be less competition for land from other sectors like office or hotels so it might be easier to secure plots for development.

‘We’re looking at valuations across markets and in some, there are discounts due to Covid-19,’ said Combet. ‘And now the question from our risk department is what will the next academic year look like? Travel restrictions could have a significant impact. In some places local students could replace international students, but to what extent?’

These are all questions that will only find answers over the next few months. However, the sector is strong and cases of distress are likely to be an isolated few despite the challenging conditions experienced in 2020.

‘Our sector has really learnt a lesson from the GFC,’ said Waterhouse. ‘There are no high levels of leverage and will be no generalised distress, but only some individual cases of short-term cashflow issues. There will be opportunities here and there across Europe.’

Missed Real Asset Media’s Student Housing investment briefing? Catch up here: